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COPYRIGHT DEPOSE 



LIABILITY AND 
COMPENSATION INSURANCE 



A Selection of 

APPLETONS' BUSINESS BOOKS 

Fundamentals of Salesmanship, by Norris A. Brisco 

Retail Selling and Store Management, by Paul H. Nystrom 

Advertising and Selling, by H. L. Hollingworth 

The Business of Advertising, by Earnest Elmo Calkins 

Modern Advertising, by Earnest Elmo Calkins and Ralph Holden 

Money and Banking, by John Thorn Holdsworth 

The Modern Bank, by Amos K. Fiske 

The Work of Wall Street, by Sereno S. Pratt 

Funds and Their Uses, by Frederick A. Cleveland 

Credit and Its Uses, by William A. Prendergast 

Rural Credits, by Myron T. Herrick 

Interest Tables and Formulae, by John G. Holden 

Financial Crises, by Theodore E. Burton 

Corporation Finance, by Edward S. Mead 

Trust Finance, by Edward S. Mead 

The Principles of Industrial Management, by J. C. Duncan 

Modern Industrialism, by Frank L. McVey 

Textiles, by Paul H. Nystrom 

Cost-Keeping for Manufacturing Plants, by Sterling H. Bunnel 

Modern Accounting, by Henry Rand Hatfield 

Accounting Practice, by Clarence M. Day 

Elements of Accounting, by Joseph J. Klein 

A First Year in Bookkeeping and Accounting, by George A. 

Macfarland and Irving D. Rossheim 
American Corporations, by John J. Sullivan 
Corporations and the State, by Theodore E. Burton 
American Business Law, by John J. Sullivan 
The Essentials of Business Law, by Francis M. Burdick 
Property Insurance, by Solomon S. Huebner 
Life Insurance, by Solomon S. Huebner 
The Life Insurance Company, by William Alexander 
Newspaper Reporting and Correspondence, by Grant Milnor Hyde 
Newspaper Editing, by Grant Milnor Hyde 
Practical Journalism, by Edwin L. Shuman 
Principles of Railroad Transportation, by Emory R. Johnson and 

Thurman W. Van Metre 
Elements of Transportation, by Emory R. Johnson 
Ocean and Inland Water Transportation, by Emory R. Johnson 
Railroad Traffic and Rates, by Emory R. Johnson and Grover 

G. Huebner 
Railroad Finance, by Frederick A. Cleveland and Fred, W. Powell 
Railroad Administration, by Ray Morris 
Railroad Accounting, by William E. Hooper 
Agricultural Commerce, by G. G. Huebner 
Irrigation Management, by Frederick Haynes Newell 
Irrigation in the United States, by R. P. Teele 

New Volumes Will be Added to This List at Frequent Intervals 

D. APPLETON AND COMPANY, PUBLISHERS, NEW YORK 

177 B 



LIABILITY AND 
COMPENSATION INSURANCE 

INDUSTRIAL ACCIDENTS AND THEIR PREVENTION, 
EMPLOYERS' LIABILITY, WORKMEN'S COMPEN- 
SATION, INSURANCE OF EMPLOYERS' 
LIABILITY AND WORKMEN'S 
COMPENSATION 



BY 

RALPH H. BLANCHARD 

INSTRUCTOR IN INSURANCE, WHARTON SCHOOL OF FINANCE AND COMMERCE 
UNIVERSITY OF PENNSYLVANIA 




D. APPLETON AND COMPANY 

NEW YORK LONDON 

1917 



^,^ w 






Copyright, 1917, by 
D. APPLETON AND COMPANY 



SEP 17 19(7 



Printed in the United States of America 



'CI.A473527 



PREFACE 

The inadequacy of the employers' liability principle 
gave rise to a demand for more liberal legislation and 
the period beginning with 191 1 has been marked by 
the enactment of workmen's compensation laws granting 
benefits to workmen for practically all injuries occurring 
during working hours. Such laws are now in force in 
thirty-two states and two territories, and an act was 
passed in 1916 covering all civil employees in the service 
of the Federal Government. These developments have 
broadened and intensified the need for insurance to re- 
lieve employers of the uncertain and heavy burden of 
payments to employees and to secure workmen in their 
rights to receive compensation. To furnish insurance 
commensurate with these needs both private and gov- 
ernmental agencies have been created and extended. 

Workmen's compensation and its insurance involve 
numberless intricate problems, legislative, administrative, 
and technical. The revolutionary nature of the principle 
and its rapid adoption have made it difficult to arrive at 
adequate solutions. Much remains to be done, but the 
accomplishments of legislators, public and private offi- 
cials, and insurance scientists have been remarkable, and 
what might have been a growth of many years has been 
compressed into six. The work of these six years has 
been fundamental, precedent has not been allowed to rule, 
and the future will probably see the development of pres- 
ent principles rather than the discovery of new ones. 

This volume aims to present the results of the work- 
men's compensation movement in the United States in 
terms of legislation and insurance practice, and to ex- 



r 



vi PREFACE 



plain the industrial accident problem and the development 
of liability and compensation principles as a background 
for the comprehension of present problems. In method 
of presentation it follows the outline of a course of in- 
struction given by the writer in the Wharton School of 
the University of Pennsylvania; taking up successively 
industrial accidents and their prevention, the law of neg- 
ligence, the development of workmen's compensation, ex- 
isting compensation statutes, and the principles and prac- 
tices of insurance as applied to employers' liability and 
workmen's compensation. Where authorities disagree, 
both sides are presented — the book is intended to be a 
text rather than a polemic — and final conclusions on con- 
troversial subjects have been avoided. Wherever neces- 
sary in the interests of accuracy, chapters have been read 
and criticized by specialists. Suggestive references are 
added wherever they are available, that the student who 
desires to do so may be able to go to more exhaustive 
and particularized sources. 

It is hoped that the volume may prove useful as a 
survey of the general field for professional and lay stu- 
dents as well as for those whose work lies in specialized 
branches of the insurance business. 

Space does not permit detailed acknowledgment of the 
assistance received from public and private officials, with- 
out whose cooperation the preparation of this text would 
have been impossible. The author is greatly indebted to 
these, and especially to Dr. S. S. Huebner, at whose sug- 
gestion the work was undertaken, and to Dr. Bruce D. 
Mudgett, both of whom have read the manuscript and 
aided with constructive suggestions. 

Ralph H. Blanchard. 
University of Pennsylvania. 



CONTENTS 



PART I 
INDUSTRIAL ACCIDENTS AND THEIR PREVENTION 

CHAPTER PAGE 

I. Industrial Accidents 3 

The extent of industrial accidents, 3. The results of 
industrial accidents, 5. Responsibility, 9. Accident 
statistics, 11. The problem of industrial accidents, 12. 

II. The Prevention of Industrial Accidents ... 13 

Agencies of accident prevention, 14. Methods of acci- 
dent prevention, 17. Occupational diseases, 26. 

III. The Results of Accident Prevention .... 27 

Reduction in accident frequency, 27. Reduction in loss 
of time and wages, 31. Net saving ? 33. Conclusion, 36. 



PART II 

EMPLOYERS' LIABILITY AND WORKMEN'S 
COMPENSATION 

IV. The Law of Negligence as Applied to the Relation 

of Master and Servant 41 

The law of negligence, 41. Employers' liability, 42. 
Proof of liability, 45. Assumption of risk, 45. Com- 
mon employment, 46. Contributory negligence, 48. 
Burden of proof, 48. Death limitation, 49. Contract- 
ing out, 49. Modifications of the common law, 49. 
Modifications of the fellow-servant rule, 50. Historical 
development, 52. 

vii 



viii CONTENTS 

CHAPTER PAGE 

V. Criticism of the System of Employers' Liability . 57 

The employee's criticism, 59. The employer's criticism, 
63. Society's criticism, 64. Summary, 65. Other at- 
tempts to solve the accident problem, 65. Conclusion, 
66. 

VI. The Theory of Workmen's Compensation ... 68 

Changes in industrial relations, 69. Change from 
handicraft to machinery, 72. The growth of cities, 73. 
New social ideas, 73. Workmen's compensation, 75. 
Definition of workmen's compensation, j6. Basis of 
workmen's compensation, 76. Conclusion, 78. 

VII. Historical Development of Workmen's Compen- 

sation in Foreign Countries 79 

Germany, 82. Early laws, 82. Liability act of 1871, 83. 
Workmen's compensation, 84. Provisions of the pres- 
ent law, 87. Great Britain, 88. Employers' liability, 
88. Workmen's compensation, the law of 1897, 90. 
Later acts, 92. 

VIII. Historical Development of Workmen's Compen- 

sation in the United States and Territories . 94 

Compensation schemes of private corporations, 95. 
Workmen's collective insurance, 96. The Maryland act 
of 1902, 96. The Massachusetts act of 1908, 98. The 
federal act of 1908, 99. Later acts, 99. 

IX. Workmen's Compensation Legislation in the 

United States and Territories .... 103 

Election of compensation, 104. Employments covered, 
108. Injuries covered, no. The beneficiaries of com- 
pensation, 112. Waiting period, 114. 

X. Workmen's Compensation Legislation in the 

United States and Territories (Continued) . 116 

The schedule of compensation, 116. Classification of 
industrial accidents, 116. Total disability benefits, 118. 



CONTENTS ix 

CHAPTER PAGE 

Partial disability benefits, 120. Specific permanent in- 
jury schedules, 121. Death benefits, 123. Medical and 
surgical aid, 126. Commutation of payments, 126. 
Criticism, 127. The computation of compensation, 129. 

XL Workmen's Compensation Legislation in the 

United States and Territories (Continued) . 132 

Administration, 132. Administrative commissions, 132. 
The duties of the commission, 134. Advantages of the 
commission plan, 136. Disadvantages of the commis- 
sion plan, 137. Miscellaneous provisions, 137. Burden 
of cost, 137. Compensation a'preferred claim, 138. As- 
signments and exemptions, 138. Accident prevention, 
139. Other provisions, 139. 

XII. The Constitutionality of Workmen's Compensa- 

tion Laws 142 

Compulsory laws, 143. The Ives case, 143. The Clau- 
sen case, 147. Supreme court decisions, 151. Elective 
laws, 155. 

PART III 

EMPLOYERS' LIABILITY AND WORKMEN'S COMPEN- 
SATION INSURANCE 

XIII. The Theory of Insurance as Applied to Employ- 

ers' Liability and Workmen's Compensation . 161 

The theory of probability, 162. Accuracy of the theory, 
163. Application of the theory of probability to the 
insurance of employers' liability and workmen's com- 
pensation, 168. Practical qualifications, 171. 

XIV. Methods of Insurance 173 

Self-insurance, 173. Types of insurance organizations, 
174. Insurance requirements, 175. Methods of insur- 
ance permitted, 177. The stock company, 179. Char- 
acteristics, 179. History and present position of stock 
companies, 180. Arguments for insurance in stock 



x CONTENTS 

CHAPTER PAGE 

companies, 181. Arguments against insurance in stock 
companies, 183. The mutual, 184. Characteristics, 184. 
History and present position, 185. Arguments for 
mutual insurance, 186. Arguments against mutual in- 
surance, 187. 

XV. Methods of Insurance (Continued) .... 188 

The state funds, 188. Characteristics, 188. History 
and extent of business, 190. Arguments in favor of 
state funds, 191. Arguments against state funds, 192. 
Conclusion, 193. Conclusions from experience, 195. 
The future, 197. 

XVI. The Policy Contract 199 

General principles, 199. A contract of indemnity, 199. 
A personal contract, 200. Rules of construction, 201. 
Employer's liability contract, 201. The obligation as- 
sumed, 201. Premium computation, 202. Inspection, 

203. Cancellation, 203. Notices, 203. Warranties, 

204. Miscellaneous, 204. Workmen's compensation 
contract, 205. The obligation assumed, 205. Premium 
adjustment, 206. Notice, 206. Cancellation, 206. Ap- 
proval of the contract, 206. 

XVII. Manual Premium Rates 208 

Employers' liability rates, 208. Workmen's compensa- 
tion rates, 209. History, 209. The importance of the 
rate, 210. The task of rate-making, 210. Kinds of 
rates, 211. Manual rates, 211. Definition, 211. Use 
of manual, 211. The component parts of a manual 
rate, 212. Factors to be considered in computing prob- 
able loss cost, 215. Factors causing variation in loss 
cost between states, 221. The expense and profit fac- 
tors, 222. 

XVIII. Manual Premium Rates (Continued) . . . 223 

Calculation of manual rates, 223. The problem, 223. 
The machinery of rate-making, 224. Method of cal- 



CONTENTS xi 

CHAPTER PAGE 

dilating manual rates, 226. Basic pure premiums, 227. 
Law differential, 227. Accident frequency, 230. In- 
creasing cost of the act, 232. Industrial diseases, 232. 
Catastrophes, 232. Expense, 232. Typical rate calcula- 
tion, 235. Criticism of present methods of calculation 
22,6. The future, 237. 

XIX. Merit Rating . . 240 

Bases for merit rating, 241. Schedule rating, 241. 
Definition, 241. The schedule, 242. Types of hazard, 
243. Machine-employee ratio, 246. Safety organiza- 
. tion, inspection service, and education, 248. Use of eye 
protectors, etc. ; maintenance and inspection, 249. For- 
mula rating, 249. Application of the schedule, 249. 
Conclusion, 252. 

XX. Merit Rating {Continued) 253 

Experience rating, 253. Definition, 253. Purpose, 253. 
Requirements for a scientific plan of experience rating, 
254. The New York plan, 255. Calculation of loss 
ratio, 255. Neutral zone, 257. Maximum debits and 
credits, 257. Computation of actual debits and credits, 
258. Schedule rated risks, 259. Application of the 
plan, 259. Other plans, 259. Proposed plans, 260. 
Summary of arguments pro and con, 261. Conclusion, 
262. 

XXI. Reserves 265 

Unearned premium reserve, 265. Method of calcula- 
tion, 266. Loss reserves, 267. Definition and purpose, 
267. Desiderata, 268. Difficulties, 269. Methods of 
calculation, 270. Present law, 272. Defects of the 
present law, 275. Proposed law, 275. Other methods 
used, 278. 

XXII. Insurance of the Catastrophe Hazard . . . 280 

Limits, 282. Accumulation of catastrophe reserves, 
282. Reinsurance, 283. Workmen's compensation, 284. 



xii CONTENTS 



APPENDICES 

PAGE 

A. The New York Workmen's Compensation Law . 289 

B. Form of Workmen's Compensation and Employers' 

Liability Policy Contract Covering a Typical 
Manufacturing Risk 361 

Index 381 



PART I 

INDUSTRIAL ACCIDENTS AND THEIR 
PREVENTION 



CHAPTER I 

INDUSTRIAL ACCIDENTS 

Industrial accidents, those accidents occurring to 
an employee during his working hours, create the 
problems of which the systems of Employers' Liability 
and Workmen's Compensation are attempted solu- 
tions. 

The Extent of Industrial Accidents. — It has been 
estimated by Dr. Frederick L. Hoffman that there oc- 
curred in the United States, during the year 191 3, 
700,000 industrial accidents, involving a disability 
period of over four weeks and 25,000 which termi- 
nated fatally. 1 In the metal and miscellaneous min- 
eral mines of the United States the statistics of acci- 
dents for the year 191 3 are as follows : 2 

Per 1000 
Number employed 

Fatally injured 683 3.54 

Seriously injured (loss of 20 days or 

more) 5,890 30.50 

Slightly injured (loss of over one 

and less than 20 days) 27,081 140.25 

The mining industry is of an extremely hazardous na- 
ture and the accident frequency among its employees 

1 Industrial Accident Statistics, p. 6. 

2 U. S. Bureau of Mines, Technical Paper 94, p. 2J. 

3 







4 COMPENSATION INSURANCE 

is higher than in any other. In two other dangerous 
industries for which we have statistics for the 
entire country the following tables have been com- 
piled : 

Accidents to Employees of Steam Railways Year 
Ending June 30, 1915 3 

Per 1000 
Number employed 

Killed 2,152 1.49 

Injured 138,092 88.64 



Accidents in 155 Iron and Steel Plants Year End- 
ing June 30, 1910 4 

Per 1000 300- 
Number day workers 

Fatal 274 1.86 

Permanent injury 400 2.72. 

Temporary disability (one day 

and over) 35>3°4 240.6 

Total 36,038 245.2 

Unfortunately we .have no statistics to show the 
number of industrial accidents throughout the United 
States in other industries but certain of the indi- 
vidual states have gathered valuable data from which 
the following table is cited as especially signif- 
icant : 

3 Interstate Commerce Commission, Accident Bulletin No. 56, 

P- 23. 

4 Report on Conditions of Employment in the Iron and Steel 
Industry in the United States, Vol. IV, p. 43. 



INDUSTRIAL ACCIDENTS 5 

Industrial Accidents in Massachusetts for the 
Year Ending June 30, 1914 5 

Fatal accidents 509 

Non- fatal accidents 96,382 

Total 96,891 

Rates per 1000 employees : 

Automobile factories 287. 

Box makers (wood) 137. 

Car and railroad shops 100. 

Cotton mills 6y. 

Boots and shoes 54. 

Clothing makers 22. 

Average for 25 selected industries 102.85 

Further citations would only serve to emphasize the 
fact which the above figures clearly indicate, that in- 
dustrial accidents play no inconsiderable part in the 
conduct of modern business, and are sufficiently nu- 
merous to warrant careful study with a view to elimi- 
nating them or mitigating their consequences. Such a 
study should proceed first in the direction of a de- 
termination of the economic loss occasioned by them. 
Physical suffering and anxiety must also be con- 
sidered but these consequences are not capable of 
measurement and therefore cannot be made the sub- 
ject of a scientific study. Having determined the eco- 
nomic loss we will be in a position to judge the mag- 
nitude of the problem and to adopt measures for its 
solution which are commensurate with its importance. 

The Results of Industrial Accidents. — The occur- 

5 Second Annual Report of the Industrial Accident Board of 
Massachusetts, Boston, 1915, pp. 29 and 32. 
2 



6 COMPENSATION INSURANCE 

rence of these injuries is directly detrimental to the 
employee, the employer, and to society. 

The most obvious loss is borne by the working class, 
the employee and his dependents, and consists of sev- 
eral items; loss of time, loss of wages, and medical 
and surgical expenses. In 130 steel plants during the 
two years ending June 30, 19 10, the average time lost 
per injury was 12.9 days, and the average time lost 
per 300 day worker for the same period in plants and 
departments where data were available was estimated 
at 3.5 days. 6 Assuming an average wage of $2.00 per 
day the wage loss per injury was $25.80 and per 
worker, $7.00, in addition to medical and surgical ex- 
penses. These figures are based on a total of 11,702 
accidents and 150,714 days lost ; involving, at the $2.00 
wage, a total loss of $301,428 in wages, to which 
should be added payments to physicians and hospitals. 
In Massachusetts the duration of total disability has 
been analyzed for the 96,382 non-fatal accidents men- 
tioned above with the following results : , 

Duration of Total Disability No. of Cases % of Total 

I week and under 24,301 25.21 

1 to 2 weeks 9,755 10.12 

2 to 4 weeks 9,221 9.57 

4 to 8 weeks 7>°65 7-33 

8 to 13 weeks 2,549 2.64 

13 weeks to 6 months. M9 1 1.55 

6 months to 51 weeks 438 .45 

52 weeks and over 293 .30 

Disability of less than one day. . . . 41,269 42.82 

6 Report on Iron and Steel Industry. Vol. IV. pp. 53-56. 



INDUSTRIAL ACCIDENTS 7 

The wages of the workman who suffered the above 
injuries have been analyzed as follows : 



No. of %of 

Wage Groups Cases Total 

$6 and under 5,171 5.37 

6 01— $7 00 3,268 3.39 

7 01— 8 00 5,468 5.67 

8 01 — 9 00 7,94i 8.24 

9 01—10 00.... . 7,569 7.85 

10 01 — 11 00 8,471 8.79 

11 01 — 1200 12,668 13.14 

12 OI — 13 QO..... 4,670 4.85 

13 01 — 1400 8,075 8.38 

14 01 — 1500 7,782 8.07 

15 01—16 00 3,792 3.93 



Wage Groups 

$16 01 — $17 00. 

17 01 — 18 00. 

18 01 — 19 00. 

19 01 — 20 00. 

20 01 — 21 00. 

21 01 — 22 00. 

22 01 — 23 00. 

23 01 — ■ 24 00. 

24 01 — 25 00. 
Over $25 



No. of %of 
Cases Total 



4,085 
5,029 
1,612 

3,194 
1,807 
1,022 
496 
842 
1,272 
2,148 



4.24 
5.22 
1.67 

3-3i 
1.87 
1.06 

•51 

•87 

1.32 

2.23 



Total 96,382 



All of the above figures apply only to non-fatal ac- 
cidents which, while they are much more numerous, 
cause, in the average case, much less economic loss 
than do fatal accidents, for the majority of workmen 
have one or more persons dependent in whole or in 
part upon their wages for support. Of the 509 fatal 
accidents in Massachusetts 422 involved dependency, 
942 persons were totally dependent in 331 cases, and 
144 were partially dependent in 91 cases; in 87 cases 
there were no dependents. 

The relative importance of the losses from various 
types of disability may be indicated in a very general 
way by a table drawn up by the actuaries of the Indus- 
trial Insurance Department of the state of Washing- 
ton. Assuming that the average work year consisted 
of 300 days and that the average life expectancy was 
twenty-five years, this table was compiled for the year 
ending June 30, 1913. 7 

7 Second Annual Report of the Industrial Insurance Depart- 
ment, Olympia, Wash., 1914, p. 102. 



8 COMPENSATION INSURANCE 

Work years lost 

Fatal Accidents 8,225. 

Temporary Total Disability 1,135.8 

Permanent Partial Disability 4,131.2 

Permanent Total Disability 325. 



13,817- 



Volumes might be filled with statistics to show the 
magnitude of the problem from the point of view of 
the workingman. He is hard-pressed to meet the nec- 
essary expenses of existence and is entirely incapable 
of providing adequately for himself and his depend- 
ents in case an accident removes his source of income. 
Unquestionably, were his the only loss from industrial 
accidents, there would be an overwhelming need for 
investigation and the application of remedial meas- 
ures. 

But the employer is also affected. It is to his inter- 
est to have his business proceed efficiently and without 
interruption; if a workman is injured his place must 
be filled by finding a new man who will often require 
considerable time to become accustomed to his work. 
Damage suits are a frequent result of accidents and 
these cause friction between employer and employed 
and involve large expense in the defense of claims on 
the part of the former. If there were no industrial 
accidents production would proceed on a more efficient 
basis and the attention given to the consequences could 
be expended on other problems. 

Thus far the effect of industrial accidents on those 
most vitally and directly interested has been examined, 
but if social action is to be demanded people in gen- 



INDUSTRIAL ACCIDENTS 9 

eral must be informed of their interest in the problem 
before us. Society loses, first from the direct decrease 
in productivity, due both to the cessation of produc- 
tive effort on the part of the injured man and to the 
lowering of the general efficiency of industry. In ad- 
dition, the injured man and his dependents must be 
cared for, with a consequent lowering of standards 
which reacts further to decrease general productivity. 
If the workman sues his employer for damages the ex- 
pensive machinery of the law is set in motion and an- 
other heavy item of loss is added, for cases of this 
sort occupy a large share of the court's time where 
workmen's compensation laws are not yet in force. 

Responsibility. — Having investigated the nature and 
extent of industrial accidents the next step logically 
is to determine where the responsibility for their oc- 
currence rests. With a knowledge of this, we can 
more readily attack the causes, and more justly assess 
the cost of caring for the injured. Many accidents 
can be traced to a lack of care or to actual wrongdo- 
ing on the part of some person, employer or employee, 
but by far the greatest share of casualties is due to 
the hazard of industry. By the hazard of industry 
(or "trade risk") is meant that hazard which accounts 
for accidents not due to the personal fault of any in- 
dividual. They are a necessary result of the existing 
methods of conducting business, and responsibility for 
their occurrence should be assigned to the industry. 
That this factor is of very real importance in deter- 
mining accident rates is shown by an examination of 
comparative tables showing the rates for different in- 
dustries over a series of years. It is found that the 



10 COMPENSATION INSURANCE 

variation as between industries is approximately con- 
stant; for example, mining and steel work will show 
a high accident frequency, while the textile industry 
and boot and shoe manufacturing will always have 
a much lower rate. 

Various attempts have been made to analyze reports 
of accidents in order to determine the personal and in- 
dustrial factors. The results should be accepted as 
only approximately correct since so many elements 
enter into each case that it is impossible to make rigid 
classifications. A careful statistical investigation in 
a large iron and steel plant covering a period of six 
years discloses the following figures : 8 

Accidents due to % 

Hazard of Industry 60 

Negligence of worker 7 

Negligence of fellow worker 6 

Negligence of employer 4 

Not disclosed by the record 23 



100 



In different departments of the plant the percentage 
of accidents due to the hazard of industry varied from 
52 to 69 per cent. 

Statistics compiled for three years in- the State of 
Washington are given below : 9 

8 Report on Iron and Steel Industry. Vol. IV., pp. 174-5. 

9 Second Annual Report of the Industrial Insurance Depart- 
ment, p. g7' 

Fourth Annual Report of the Industrial Insurance Depart- 
ment, p. 94. 



INDUSTRIAL ACCIDENTS 11 

Accidents due to 1913 1914 1915 

Risk of Trade 69.0% 817% 89.0% 

Workmen's fault.. 7.8 7.2. 5.3 

Fellow servant's fault... 2.4 3.2 1.5 

Employer's fault 7 .2 .1 

Foreman's, fault 1 .1 .05 

Third person's fault 2 .2 .15 

Facts not ascertainable. . 19.8 7.4 3.9 



100% 100% 100% 

Everywhere the testimony is the same; the hazard 
of industry is responsible for a large percentage of in- 
dustrial accidents and, with the improvement of safety 
devices and greater care on the part of both the work- 
men and his employer, we may expect to see an in- 
crease in this percentage. 

It is occasionally argued that the extra hazard in- 
volved in a given trade is offset by larger wages, 
but no definite relation between hazard and wages 
has ever been shown to exist. High wages are 
usually due to the limited supply of skilled workmen 
and numerous examples of a low wage scale in 
extremely dangerous industries are familiar to every- 
one. 

Accident Statistics. — The study of industrial acci- 
dents in the United States has been greatly hampered 
by a lack of reliable and adequate data. Besides, the 
data of individual states have not been comparable be- 
cause of variation in thoroughness and methods of 
classification. The adoption of a uniform and com- 
plete accident-reporting schedule is strongly to be ad- 
vised since it is only by such means that we can se- 



12 COMPENSATION INSURANCE 

cure the facts necessary for a practical consideration 
of the problem. 

The Problem of Industrial Accidents. — With the 
above facts before us we are in a position to define 
clearly the problem involved in industrial accidents. 
We must find methods of eliminating them or of mak- 
ing their consequences less burdensome, always re- 
membering that any social cost is justified which re- 
sults in a net social saving. A consideration of these 
methods will occupy the following chapters. 

References at end of Chapter III. 



CHAPTER II 
THE PREVENTION OF INDUSTRIAL ACCIDENTS 

The most logical method of eliminating the suffer- 
ing and economic loss due to industrial accidents is to 
prevent their occurrence; with the removal of the 
cause the effect will disappear. But the complete elim- 
ination of industrial accidents seems to be impossible 
if industry is to continue with human beings as a fac- 
tor in production. Accidents must be divided into 
two classes, the preventable and the unpreventable, 
and every reasonable effort should be made to antici- 
pate and eliminate those in the first class. The burden 
of those which remain should be lightened in so far 
as possible and should be justly distributed among the 
responsible parties. 

The achievement of industrial safety through pre- 
vention of accidents, while not a new idea, has been 
the subject of active endeavor only during the last 
decade; in fact, with the greater part of our indus- 
trial population, safety work is a development of the 
last two or three years. In the past, lack of accurate 
knowledge, currency of individualistic ideals, and gen- 
erally wasteful methods of production have precluded 
attention to the problem. Industrial accidents have 
been regarded as an unfortunate but not particularly 
important incident *of modern production. Now, with 

13 



14 COMPENSATION INSURANCE 

the growth of the conservation idea, the development 
of a knowledge of consequences through statistical 
studies, and direct financial pressure on employers 
through laws compelling the payment of compensa- 
tion to workmen, we find rapidly increasing and effec- 
tive interest in the subject. 

Agencies of Accident Prevention. — The State should 
be the primary force in the prevention of accidents 
since it represents all classes and is in a position to 
exercise compulsion. That our governments have been 
far behind Europe in safety activity has been due 
largely to ignorance of the possibilities of such work 
and to absence of the demand for it because of our 
less highly concentrated population. One of the first 
examples of state interference in the cause of safety is 
the Safety Appliance Law passed by the Federal Gov- 
ernment in 1893, aimed specifically at accidents due to 
the dangerous methods of coupling cars then in vogue 
on interstate railroads. This law has since been con- 
siderably extended to cover a wider range of railroad 
work. The individual states have passed, from time 
to time, laws for the elimination of specific unsafe 
practices and for the general improvement of condi- 
tions in dangerous trades, but their enforcement has 
usually been lax and productive of little good. 

As a result, however, of steadily growing interest 
during the last six or seven years legislatures, backed 
by public demand, are enacting more effective statutes, 
in some cases independent of a Workmen's Compen- 
sation Act, but more often supplementary thereto. 
The most important feature of these later enactments 
has been the creation of expert commissions for the 



THE PREVENTION OF ACCIDENTS 15 

collection of information and the enforcement of the 
law. These commissions are usually empowered to 
make inspections and require the installation of safety 
devices, and make annual reports of the progress of 
their work. More significant still is the educational 
work which they are carrying on through the publica- 
tion of pamphlets, the promulgation of safety stand- 
ards, public exhibitions and lectures, safety museums 
and libraries, and conferences with individual em- 
ployers. 

The latest development of the governmental pro- 
gram is the adoption of safety as a subject of instruc- 
tion in the public schools. New Jersey passed a law 
in 1913 requiring courses to be installed and other 
states are becoming interested in this branch of the 
work. Capably administered, this should be an effec- 
tive method of reducing accidents. Its idea is to make 
accident prevention a part of the every-day conscious- 
ness of the population and the accomplishment of this 
end is of fundamental importance. 

Employers, after years of ignorance and apathy, are 
fast becoming awakened to the humanitarian and 
financial gains arising from accident prevention and 
are expending an immense amount of thought and 
money to decrease the accident hazard in their plants. 
The United States Steel Corporation was a pioneer 
in safety work and has developed its organization and 
methods to a very high pitch of efficiency. Leading 
corporations in other lines have also made great ad- 
vances in the direction of industrial safety and it is 
only a question of time before every corporation of 
any size will recognize accident prevention as one of 



16 COMPENSATION INSURANCE 

the most important phases of its activity. Manufac- 
turers of machinery are responding to the demand, 
and dangerous machines are now carrying guards as 
regular equipment. 1 The manufacture of safety de- 
vices is becoming an independent industry and invent- 
ors are constantly working on new ideas for more 
efficient protection. 

One of the greatest aids to the employer in the so- 
lution of safety problems is the insurance company. 
These companies, on the payment of a stipulated pre- 
mium, assume the liability of the employer to pay dam- 
ages or compensation to his employees on account of 
accidents, and one of their chief inducements is the 
offer of expert advice on safety work whereby the 
employer may not only reduce his accidents but may 
also secure substantial reductions in the rate of pre- 
mium. Competition in this service has developed in- 
spection departments which are of very real economic 
value. In addition to personal inspection and advice, 
pamphlets dealing with safety are published, warning 
signs are furnished, and some companies issue small 
volumes which are practically text-books of accident 
prevention. 

Two cooperative enterprises for improving safety 
conditions merit especial mention : the American Mu- 
seum of Safety and the National Safety Council, 
These organizations are supported by membership 
fees and contributions of industrial corporations and 
public-minded associations and individuals. 

1 One industrial corporation makes a practice, whenever a ma- 
chine comes to them insufficiently protected, of adding the neces- 
sary guards and deducting the cost from the bill for the machine. 



THE PREVENTION OF ACCIDENTS 17 

The American Museum of Safety, in New York 
City, is a clearing-house and exhibition place for safety 
methods and appliances and is modeled after the great 
safety museums of Germany and other European coun- 
tries. Safety devices and models have been collected 
and are displayed for the inspection of anyone in- 
terested. A library is also maintained and educational 
work is carried on through illustrated lectures and 
the distribution of pamphlets. 2 

The National Safety Council, with headquarters in 
Chicago, is the parent organization of large numbers 
of local councils located in the principal cities. Its 
chief features are weekly bulletins of statistics and 
safety illustrations, an information bureau for mem- 
bers, and annual Safety Congresses. These con- 
gresses attract safety experts from every industry and 
the papers and informal discussions are of great value. 

Thus far the function of the workman in the pre- 
vention of accidents has not been mentioned, though 
he is an all-important factor in the success of any 
plan for the promotion of industrial safety. The 
work of employers and the state can be made effective 
only through his intelligent and active cooperation 
and hence all safety organizations are built around 
the fundamental idea of awakening the interest of the 
employee in his own welfare. Initiative and admin- 
istration must come from the employing class, but the 
greater part of the reduction in accident rates is due 
directly to the care and efforts of the workers. 

Methods of Accident Prevention. — The develop- 

2 Massachusetts and California have Museums of Safety main- 
tained by the State. 



18 COMPENSATION INSURANCE 

ment of efficient methods for the prevention of acci- 
dents must rest on an accurate knowledge of causes. 
Hence a prerequisite to the establishment of a safety 
organization and the installation of preventive appli- 
ances is a careful study of causes and their relative 
significance. For example, Illinois statistics show 
that "falling objects" were responsible for 19 per 
cent of the accidents occurring during the six months 
ending December 31, 191 3, and that, in each class of 
industry, the number attributable to this cause far ex- 
ceeded that due to any other. These facts would indi- 
cate the necessity of giving primary emphasis to the 
prevention of such accidents and would probably war- 
rant the expenditure of a relatively large amount of 
attention and money for that purpose. A further 
study might show that these accidents give rise to 
comparatively short periods of disability and that an- 
other less numerous class results in greater total loss. 
In that case the emphasis would be shifted. This is 
but a suggestion of the need for careful scientific con- 
sideration of every element of the problem as a basis 
for effective work. 

The simplest method of protecting workmen is the 
use of mechanical guards to prevent falls and con- 
tact with dangerous machinery and to catch flying 
particles, and tools or materials which may have been 
dropped. Familiar examples are covers for gears and 
belting, railings on elevated runways, wire screens be- 
fore metal chipping machines and strips of metal or 
wood on the edges of scaffolding. Machines are often 
redesigned to render their operation safer; de- 
vices for stopping machinery are applied and the parts 



THE PREVENTION OF ACCIDENTS 19 

are made more accessible for cleaning and oiling. Ar- 
rangements are also made to prevent setting machin- 
ery in motion while men are engaged in repair work, 
and methods of lighting are used which give the em- 
ployee the clearest possible view of his work. Warn- 
ing signs, designed with a view to compelling atten- 
tion, are used to remind the employee of the presence 
of danger. Besides signs to guard specific danger 
zones, large placards and electric signs are placed in 
prominent positions to keep the idea of "safety first" 
constantly in the mind of the employee. 3 

The success of a program of accident prevention 
should be measured in terms of the consequences of 
accidents as well as of accident frequency, and every 
effort should be made to reduce the period of disa- 
bility due to them. "First aid" is an essential feature 
of a comprehensive scheme and the larger plants now 
have their own hospitals with physicians who attend 
to all injuries free of charge. It is usually required 
that every injury, no matter how slight, be submitted 
for examination. Smaller plants have visiting physi- 
cians or make arrangements for treatment at some 
general hospital. This treatment often substitutes a 
loss of a few minutes for a protracted period of dis- 
ability, as many apparently slight injuries develop into 
serious cases of infection if not attended to at the out- 
set. 

3 Illustrations of various methods of accident prevention by- 
use of mechanical guards are given on pages 20-23. 

For the illustrations of methods of accident prevention used 
in this chapter the author is indebted to the United States Steel 
Corporation, with the exception of Illustration III, which was 
furnished by the Benjamin Electric Mfg. Co. 




Illustration I 
Lathe Gears Unguarded. 




Illustration II 

Lathe Gears Guarded. 
20 



THE PREVENTION OF ACCIDENTS 21 

Carelessness and improper methods of work give 
rise to many avoidable injuries. These conditions can 
be corrected only through educational methods. Bul- 
letins are posted wherever the men are likely to read 
them, magazines are issued in which safety hints are 




Illustration III 

Stamping Press Redesigned to Require Placing Both 
Hands on Levers in Order to Operate Machine. 

combined with other topics of general interest. Stere- 
opticon lectures are given by safety experts and in 
some cases the men are paid to attend. To supplement 
these general means, individual instruction is given, 
rule books are distributed, and examinations set, with 
prizes for correct answers. In every possible way an 
attempt is made to point out to the workman that it is 



22 



COMPENSATION INSURANCE 



to his overwhelming advantage to assist in safety 
work. 

As in all extensive undertakings involving the co- 
operation of a large number of individuals, organiza- 
tion is the prime essential for the successful operation 
of a safety system. The proper development of an 
organization requires careful adaptation of its units 
to each special branch of work and coordination of 
the units in a centralized and harmonious scheme. The 





Illustration IV 
Square and Circular Knife Holders. 

organization of the United States Steel Corporation 
may be taken as an example of the successful solution 
of this problem. In 1906 a Committee of Safety was 
appointed from among the officials of the subsidiary 
companies and, since that date, this committee has 
been in supreme charge of the safety work of the Cor- 
poration. It considers safety methods and appliances, 
conducts inspections of individual companies, studies 
serious accidents, and makes recommendations for 
improvements. As a clearing house for ideas and ex- 
perience from every section of the Corporation the 
Bureau of Safety, Sanitation, and Welfare has been 










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23 



M COMPENSATION INSURANCE 

established. This bureau has headquarters in New 
York City and is in charge of a general manager 
whose entire time is given to the collection of sta- 
tistics and photographs and to the coordination and 
administration of the safety, sanitation, and welfare 
work of the Corporation. 

Each subsidiary company has its Central Commit- 
tee of Safety composed of representatives from the 
department of safety and relief, the legal and the 
surgical departments, and from the various plants. 4 
To assist this committee on special problems subcom- 
mittees of master mechanics, electrical engineers, blast 
furnace superintendents, and others, are consulted. 
Each plant has its own committee, under which are 
the safety inspector, special committees, department 
committees, a safety instructor, and committees of 
foremen and workmen. Each of these units has in 
charge the work for which it is best adapted and each 
is connected with the central committee through an 
unbroken line of responsibility. Frequent meetings 
are held, inspections are made, and recommendations 
for improvements are considered, reports on all of 
these activities being made to the superior commit- 
tees which take final action. 5 

Although no one of the methods of accident preven- 
tion outlined should be neglected, they are not all of 
equal importance in their results. Mere safeguarding 
of machines can accomplish little without education 

4 The organization of the Illinois Steel Co. will be treated as 
typical of the methods in vogue in all subsidiary companies. 

5 For a graphic outline of this organization see the diagram on 
the opposite page. 



THE PREVENTION OF ACCIDENTS 25 



SAFETY & SANITATION COMMITTEES 
ILLINOIS STEEL CO. 



LEGAL 



SURGICAL 



MASTER MECHANICS 



ELECTRICAL ENGRS 



SPECIAL STEEL 



BLAST FCS. SUPTS 



CONST. ENGINEERS 




roncMCN 

WNMAftTI 




SAFETY 
INST* 



TOUCMEN 

awtfr'sArm 




SAFETY 
IN ST*. 



of employees and the successful carrying out of any 
scheme depends largely on the organization behind 
it. Robert J. Young, Manager of the Department of 
Safety and Relief of the Illinois Steel Company, has 
made the following estimate of the relative efficiency 
of the several methods : 

Organization 55% 

Attitude and personal work of those in 

authority 30% 

Safety Committees 20% 

Inspections (not by committees) 5% 



26 COMPENSATION INSURANCE 

Education 2 

Instruction to employees 12% 

Bonuses, prizes, etc 8% 

Talks by superintendents, foremen, and oth- 
ers 3% 

Signs 2% 

Safeguarding 20% 

Safety devices 12% 

Lighting 5% 

Cleanliness and order. 3% 

Any such estimate is, of course, not final, but serves 
as an indication of the relative importance to be at- 
tached to various activities in connection with safety 
work. 

Occupational Diseases. — The problem of diseases 
arising from a workman's occupation is a phase of 
industrial hazard which has been given less attention 
than the problem of violent accidents. While less spec- 
tacular it is worthy of careful study, and efforts for 
prevention should take the same direction, with the 
emphasis on medical care and the prevention of in- 
fection. 

References at end of Chapter III. 



CHAPTER III 

THE RESULTS OF ACCIDENT PREVENTION 

Since the aim of accident prevention is reduction 
of the losses occasioned by industrial accidents, its re- 
sults should be measured in terms of saving to those 
who have experienced such losses. Society is benefit- 
ed by an increase in general productiveness and a 
decrease in the expense of caring for the injured and 
their dependents and of hearing damage suits. The 
employer gains through increased efficiency due to 
avoidance of friction and greater permanence of his 
labor force, as well as through lessened expense for 
insurance or for defending damage suits and paying 
claims. The employee receives more wages, loses less 
time, and both he and his dependents avoid suffering 
and privation. A considerable body of figures exists 
showing reduced accident frequency and consequent 
economic saving due directly to organized accident 
prevention. 

Reduction in Accident Frequency. — Reduction in 
accident frequency is the most immediate and striking 
result of safety work. A careful record of the dis- 
abling injuries occurring in a large steel plant from 
1900 to 191 1 shews the effect of a developing safety 
program. These accidents were reduced from 370 
per one thousand 300-day workers in 1900 to 109 per 

27 




28 



RESULTS OF ACCIDENT PREVENTION 29 

one thousand in 191 1, a decrease of over 70 per 
cent. 1 

The diagram on page 28 shows this experience by 
years. In connection with this diagram the records 
for the years 1906 and 1909 are particularly signifi- 
cant. "It may be stated that the year 1906 repre- 
sented a period of thorough reorganization and safe- 
guarding throughout the machine shops and in con- 
nection with other mechanical operations and that the 
accident rate shows a definite response to these ef- 
forts/' 2 "Increased output accompanied by 'speed- 
ing up' the workmen always increases the danger. 
The year 1909 was a 'speeding up' year. It was also 
a year of employment of many new workmen. Its 
accident rate reflects these conditions." 3 

In this same investigation a study was made of two 
plants having extreme conditions as to safety sys- 
tems. "Plant A stands high on the list of those 
that have undertaken successfully safety activities. 
Plant X, on the other hand, is among those which 
may be said to have done almost nothing in this di- 
rection." During 19 10 Plant A showed an accident 
rate of 180 per one thousand 300-day workers, while 
Plant X had a rate of 508, nearly three times as 
great. 4 Another study, in which sixteen plants were 
classified according to the development of their safety 
systems, showed the following results : 5 

1 Report on the Iron and Steel Industry, Vol. IV., p. 118. 

2 Thid, p. 120. 

3 Ibid, p. 121. 

4 Ibid, p. 59- 

5 Ibid, p. 43 ff- 



30 COMPENSATION INSURANCE 

Accident Rates 
per iooo 300- 
day workers. 
Class A (System well developed) 6 167.1 

Class B (System in process of development) . .272.4 

Class C (System not developed) 5°7-9 

Further notable examples of reduction in accident 
rates through safety work are given in the following 
table : 7 

American Smelting & Refining Company 24% 

Bucyrus Company 65% 

Cadillac Motor Company 69% 

Commonwealth Edison Company 40% 

Commonwealth Steel Company 69% 

Corn Products Refining Company 37% 

Eastman Kodak Company 78% 

Fairbanks-Morse Mfg. Company 7 2 % 

George Cutter Company 43% 

Harrison Bros. & Company, Inc 75% 

Illinois Steel Company 85% 

Inland Steel Company 35% 

International Harvester Company 88% 

6 "The essentials of a safety system likely to prove effective 
may be summarized as follows. In plants of Class A all the 
factors specified are present : 

1. Safeguarding by signs, warnings and mechanical con- 

trivances. 

2. Adequate safety inspection. 

3. Safety committees of superintendents and foremen. 

4. Safety committees of workmen. 

5. Emergency and hospital care of the injured. 

6. A compensation system. 

7. Provision for the permanently disabled." 

7 These figures are printed through the courtesy of The Ameri- 
can Museum of Safety. 



RESULTS OF ACCIDENT PREVENTION 31 

Jones & Laughlin Steel Company 78% 

A. J. Lindemann & Hoverson Company 62% 

Milwaukee Coke & Gas Company 83% 

Neenah Paper Company 83% 

Packard Motor Car Company 72% 

The Pullman Company 46% 

Raritan Copper Works 22% 

Rochester Railway & Light Company 33% 

United States Steel Corporation 41% 

(The reduction of the accident rate is, to a certain 
extent, cumulative since continuity of employment tends 
to a further reduction of the rate. A new man, em- 
ployed because of the incapacity of the injured employee, 
is much more subject to accidents than one who has 
worked continuously.) 

Reduction in Loss of Time and Wages. — From an 
economic point of view the chief index of loss from 
accidents is the loss of time. In a large steel plant, 
employing 6,624 men the total time lost was reduced 
from 22,963 days in 1905 to 18,002 days in 19 10, a 
saving of 4,961 days through the adoption of safety 
measures. The average number of days lost per 300- 
day worker was reduced from 4.28 in 1905 to 2.96 in 
191 o. 8 Assuming a wage of $2.00 per day, this rep- 
resents a saving during the year 19 10 of $9,922 for 
the working force of the plant, and of $2.64 for each 
300-day worker. In two plants having extreme con- 
ditions as to safety systems, there was, during 19 10, 
a difference of 6.1 days per 300-day worker in favor 
of the plant with a well developed system, representing 

8 Report on the Iron and Steel Industry, Vol. IV., p. 57. 



32 COMPENSATION INSURANCE 

a wage saving of $12.20. In Wisconsin safety work 
has resulted in large reductions in the number of days 
lost 9 and it is probable that, were figures available, 
the same results would be evident in other states. 10 

The Massachusetts Industrial Accident Board has 
published a study 11 showing the results of a cam- 
paign to secure the installation of safety devices and 
organizations. These figures may be slightly inaccu- 
rate owing to the tact that, during the second of 
the periods considered, the assumption was made that 
there had been no change in the number of employees 
in the various plants. Even with this qualification, 
the study is extremely valuable and the results may 
be considered as approximately correct. Data were 
first collected for the six-months' period ending De- 
cember 31, 1913, from factories employing a total of 
over 55,000 men. During the succeeding six months 
inspections of the factories were made and, on the 
basis of the inspections and an analysis of the data, 
recommendations were made for improvement, and 
employers were urged to adopt effective means for 
promoting safety. As a measure of the success of the 
campaign figures were again collected for the six 
months ending December 31, 19 14, and these were 
compared with the corresponding data for the preced- 

9 See "Organized Accident Prevention," by C. W. Price. 

10 The figures given in this paragraph have reference only to 
the loss of time occasioned by non-fatal accidents. The reduction 
in loss through death, computed on a basis of working-life ex- 
pectancy, would add greatly to their significance but the necessary 
information is not available. 

11 Massachusetts Industrial Accident Board, Bulletin No. 13, 
October, 1915. 



RESULTS OF ACCIDENT PREVENTION 33 

ing year. This comparison gave the following re- 
sults : 12 

Reductions in Accident Frequency and Gravity 

% 

Reported accidents. . . . .u 20.8 

Disability cases 20.3 

Days lost .1 36.8 

Wage loss 36.0 

Compensation cases. . . . , 28.6 

Compensation days. 44.2 

Compensation paid 41. 1 

A reported accident is one for which a notice of in- 
jury was sent in by the employer, it being required 
that all accidents, however slight, be reported to the 
Board. "A disability case is one in which there was 
disability on any day or shift other than the one 
on which the injury occurred," and a day lost is any 
such other day. The wage loss is secured from the 
accident reports. A compensation case is one on ac- 
count of which payments were made under the com- 
pensation act for total disability, the act providing 
that compensation shall be paid after the first two 
weeks of disability only. A compensation day is one 
for which payment was made and the item of "com- 
pensation paid" represents the actual amount received 
for cases of total disability. 

Net Saving. — So far only gross saving has been 
considered, but to analyze the situation accurately the 
net saving should be determined, for accident preven- 

a Ibid j p. 15. 



34 COMPENSATION INSURANCE 

tion involves large expenditures and its results should 
be judged in comparison with the cost of obtaining 
them. Such a judgment must be based on a broad in- 
terpretation of the terms "results" and "costs," for 
they include some items which cannot be numerically 
expressed and others the value of which is not read- 
ily ascertainable. For example, suffering cannot be 
expressed in figures nor is the value of a decrease in 
friction and labor troubles easily computed. Another 
difficulty in making an accurate judgment at present 
arises from lack of experience and incompleteness of 
data. In the greater number of plants accident pre- 
vention is a development of the last two or three years 
and in few have trustworthy records been kept even 
for that length of time*. In only one published re- 
port has it been possible to find a statement of the 
money saving as compared with expenditures for ac- 
cident prevention. The United States Steel Corpora- 
tion reports a gross saving in casualty expense for 
serious injuries of $4,775,692.64 during the years 191 1, 
19 12 and 1913. The expenditures for safety which 
produced this saving amounted to $2,003,712.29, leav- 
ing a net saving of $2, 771, 980.35. 13 

Such figures indicate very definitely that the pre- 
vention of accidents may result in financial saving to 
the employer and it is the opinion of most employers 
who have adopted active safety measures that a net 
saving is actually produced. The statements that 
"safety work is indispensable to an efficient manufac- 
turing organization" and that "in our opinion there is 

13 U. S. Steel Corporation. Bureau of Safety, Sanitation & 
Welfare. Bulletin No. 5, Dec., 1914. See diagram, p. 35. 



RESULTS OF ACCIDENT PREVENTION 35 

no question that all efforts towards 'safety first' are 
good business and produce profits" are examples of 




this attitude. In addition, the fact that those corpora- 
tions which have long had a reputation for "hard- 



36 COMPENSATION INSURANCE 

headed, practical business sense," are leading in safety 
work is evidence of its probable contribution to profits. 

CONCLUSION 

It has been shown that an immense number of in- 
dustrial accidents which cause large losses to society 
and to particular classes of society occur every year, 
and that the burden of these losses falls most heavily 
on the working class, the group least able to bear it. 
Responsibility for the occurrence of a large share of 
these accidents has been definitely assigned to present 
methods of conducting industry. Further, it has been 
demonstrated that a considerable percentage of indus- 
trial accidents may be prevented by the adoption of 
thoroughly practicable safety measures. That the 
adoption of such measures results in a tremendous 
economic saving to society and to individuals is un- 
questioned; that this saving more than counterbal- 
ances the economic cost of prevention is almost cer- 
tain. If the relief of suffering and privation is con- 
sidered, all doubt of the desirability of active meas- 
ures of prevention is removed. 

But even the most thoroughgoing efforts to prevent 
industrial accidents have not succeeded in eliminating 
them entirely and their total elimination is inconceiv- 
able so long as the human being is a factor in indus- 
try. The greater part of our industries have not even 
reached this irreducible minimum, for many employ- 
ers still regard safety work as a "socialistic fad" and 
effective compulsion is exercised in but few states. 
Accidents, preventable and unpreventable, happen 
every day and create a problem that demands solution. 



RESULTS OF ACCIDENT PREVENTION 37 

For the problem of preventable accidents there is only 
one solution. For those which can not be prevented 
some means of compensation for economic loss should 
be provided. 

REFERENCES 

Accidents and Accident Prevention, Vol. IV. of Report 
on Conditions of Employment in the Iron and Steel 
Industry in the United States. 626. Congress, 1st 
Session, Senate Document No. no, Washington 

(1913); 

Hoffman, Frederick L. Industrial Accident Statistics, 

Bulletin of the U. S. Bureau of Labor Statistics, 

No. 157. Washington (1915). 
Seventh Annual Report of the Bureau of Labor Statis- 
tics, and Supplement, Springfield, 111., 1914, 191 5. 
Accident Bulletin. Published quarterly by the Interstate 

Commerce Commission, Washington. 
Bulletins on Mine Accidents, Published by the Bureau 

of Mines, Washington. 
Beyer, David S. "Industrial Accident Prevention," 

Houghton Mifflin, Boston (1916). 
Proceedings of the Safety Congress of the National 

Safety Council. (Annual), Chicago. 
Bulletin of the Bureau of Safety, Relief, Sanitation and 

Welfare of the U. S. Steel Corporation. Nos. 4 and 

5, New York. 
Annual Report of the Massachusetts Industrial Accident 

Board. Boston. 
The Sequel to the Invitation to Employers to Organize for 

Safety, Bulletin No. 13, Massachusetts Industrial 

Accident Board, Boston (1915). 
Annual Report of the Industrial Insurance Department, 

Olympia, Washington. 
4 



38 COMPENSATION INSURANCE 

Annual Report of the Industrial Accident Commission, 

San Francisco. 
Price, C. W. "Organized Accident Prevention," Safety 

Engineering ( January, 1 9 1 5 ) . 



PART II 

EMPLOYERS' LIABILITY AND WORKMEN'S 
COMPENSATION 



CHAPTER IV 

THE LAW OF NEGLIGENCE AS APPLIED TO THE RE- 
LATION OF MASTER AND SERVANT 

The Law of Negligence. — The law of negligence 
is a branch of the common law and consists of a set 
of rules for determining the legal liability of one per- 
son to another for injuries caused by an unintentional 
neglect of duty. / In any given case it is attempted to 
determine who is at fault (i. e., guilty of negligence) 
and to assess damages upon the guilty party for the 
benefit of the person injured by the fault. Actionable 
negligence may be defined as follows: "Negligence, 
constituting a cause of civil action, is such an omis- 
sion, by a responsible person, to use that degree of 
care, diligence and skill which it is his legal duty to 
use for the protection of another party from injury 
as, in a natural and continuous sequence, causes un- 
intended damage to the latter." 1 An analysis of this 
definition reveals the essentials of a cause of action 
for negligence : 

"Negligence consists in: 

i. A legal duty to use care; 

2. A breach of that duty; 

3. The absence of distinct intention to produce 

the precise damage, if any, which actually 
follows. 

1 Shearman and Rcdiield on the Law of Negligence, § 3. 

41 



42 COMPENSATION INSURANCE 

"With this negligence, in order to sustain a civil ac- 
tion, there must concur: 

1. Damage to the plaintiff; 

2. A natural and continuous sequence, uninter- 

ruptedly connecting the breach of duty with 
the damage, as cause and effect." 2 

Before 1837 there were no cases on the liability of 
a master to his servant 3 and the law of negligence 
was applied wholly as between the master and third 
parties to whom he was liable for injuries caused by 
his own negligence or by that of his servant. 4 Black- 
stone, in his Commentaries, makes no mention of the 
master's liability to his servant. The law of negli- 
gence was not applied to the internal affairs of an in- 
dustrial group, probably for the reason that, in early 
times, such groups were on much the same basis as 
the family and regulation of the personal relations of 
the members was accomplished without appeal to the 
courts. 

EMPLOYERS' LIABILITY 

Beginning with Lord Abinger's decision in the case 
of Priestly v. Fowler, 5 there has grown up a body 

2 Shearman and Rediield on the Law of Negligence, § 5. 

3 The terms master and servant are used in law as synonymous 
with the ordinary usage of employer and employee. 

4 "It is an old and thoroughly established doctrine that, where 
the relation of master and servant exists, the master is responsible 
to third persons for the damage caused by the wrongful acts or 
omissions of his servants, in the course of their employment as 
such." Shearman and Redfield, op. cit., § 141. This rule is 
known as the doctrine of respondeat superior. 

6 3 M. & W. 1 (1837). 



THE LAW OF NEGLIGENCE 43 

of law defining the liability of an employer to his serv- 
ant for personal injuries. The law of employers' 
liability follows the general principles of the law of 
negligence but has some features peculiar to itself. 6 
There are certain legal duties of protection which the 
master owes to his servant, to whom he is liable in 
damages for the injurious consequences of his neglect 
to use due care in the performance of such duties. 7 
These duties are : 8 

i. To employ suitable fellow servants. 

The master must "use reasonable care in se- 
lecting suitable and sufficient co-servants. " 

2. To establish and promulgate proper rules. 

The nature of the rules required is deter- 
mined by the character of the business- 
some employments requiring no rules. "Or- 
dinary diligence" in establishing and enforc- 
ing rules is sufficient. 

3. To provide a safe place to work. 

" Tt is the master's duty to exercise reason- 
able care in furnishing those things which go 
to make up the plant and appliances, so as 
to have them at the outset reasonably safe 



6 There is some dispute among authorities as to whether these 
features are a natural application of the established principles of 
the common law of negligence or are the result of the economic 
philosophy of the judges with respect to the peculiar relation of 
master and servant. For discussions from different points of 
view see Bohlen, "Voluntary Assumption of Risk," and Burdick, 
"Is Law the Expression of Class Selfishness?" 

1 V. supra, analysis of definition of negligence, pp. 41, 42. 

8 Burdick, The Law of Torts, pp. 184 ff. 



44 COMPENSATION INSURANCE 

for the work of the servants who are en- 
gaged in the general employment, and fur- 
ther, to exercise reasonable care, by means 
of inspection and repairs, when needed, to 
keep the plant and appliances reasonably 
sale. J 

4. To furnish safe appliances. 10 

5. To warn of danger. 

The master must warn his servants and give 
them suitable instructions where he knows 
that the employment is dangerous or would 
discover it with due care, and where he 
has reason to believe that the servant does 
not know of the danger and would not 
discover it. The master's duty is to do 
"what a prudent master would naturally 
do." 

If the master has properly performed all of these 
duties he cannot be held liable for injuries to a serv- 
ant arising "out of and in the course of his employ- 
ment." The test of performance in each instance is 
relative; there must be a reasonable compliance with 
the duty, taking into consideration the circumstances, 
the nature of the -business, and the usual methods of 
conducting it. " 'Reasonably safe means safe accord- 
ing to the usages, habits, and ordinary risks of the 
business.' " n In no case is the master deemed to be 



9 Smith v. Erie Ry. Co., 67 N. J. L. 636, quoted by Burdick. 

10 V. supra, under third duty of master. 

11 Titus v. Bradford, etc., Ry., 136 Pa. 618, quoted by Burdick. 
Italics not in original. 



THE LAW OF NEGLIGENCE 45 

a guarantor of the safety of his employees; his duty 
extends only to the exercise of proper diligence. These 
duties are, however, personal and the master can not 
relieve himself of responsibility for their performance 
by delegating them to another. 

Proof of Liability. — The servant, in order to re- 
cover damages for a personal injury, has the burden of 
proof of two points : first, that the master failed to 
exercise due care in the performance of his duties; 
and second, that his failure was the proximate cause 
of the injury. To establish the first point it must be 
shown that one or more of the requirements of due 
care, as outlined above, has not been complied with; 
to establish the second, it is necessary to show that 
the absence of due care operated efficiently through 
an unbroken chain of events to produce the injury 
complained of. 

In an action brought by a servant to recover dam- 
ages for personal injury the master may avail him- 
self of certain well-defined defenses. He may al- 
lege that the servant assumed the risk of his injury, 
that the injury was caused by the negligence of a fel- 
low-servant, or that the plaintiff contributed negli- 
gently to its occurrence. The principles governing 
these defenses have been embodied in three legal doc- 
trines; the doctrine of assumption of risk, the doctrine 
of common employment, and the doctrine of contribu- 
tory negligence. 

Assumption of Risk. — Under the doctrine of as- 
sumption of risk it is held that a master is not liable 
to his servant for injuries resulting from the ordi- 
nary risks of employment of which the servant is fully 



46 COMPENSATION INSURANCE 

aware. "The general rule, resulting from considera- 
tions as well of justice as of policy, is, that he who 
engages in the employment of another for the per- 
formance of specified duties and services, for com- 
pensation, takes upon himself the natural and ordi- 
nary risks and perils incident to- the performance of 
such services. . . ." 12 While the principle of this 
doctrine is not peculiar to the relation of master and 
servant, it is most frequently used in actions involving 
that relation, and some courts have held that assump- 
tion of the risks of employment is an implied term 
of the contract of service. In certain states the doc- 
trine has been applied to relieve the master of liability 
arising from actual negligence or from violation of 
statutes requiring the installation of safety devices 
where it could be shown that the servant had knowl- 
edge of the master's conduct. 13 

Common Employrihcnt. — The doctrine of common 
employment or the " fellow-servant rule" relieves the 
employer of liability if he can show that the accident 
on account of which damages are sought was the re- 
sult of negligence on the part of a fellow-servant of 
the injured employee. In its most extreme form it is 
applied to all servants working for the same master, 
regardless of the nature of their duties. The doctrine 
was suggested in the decision in Priestly v. Fowler}^ 
an English case, but was first definitely stated in Mur- 

12 Farwell v. B. & W. R. R. Corp., 38 Am. Decis. 339 (1842). 

"The master, however, is generally held liable for injuries aris- 
ing from a defect which he has promised to remedy, for a rea- 
sonable time after the promise is made. 

Xi 3 M. & W. 1 (1837). The decision of the point at issue in 
this case did not involve the application of the fellow-servant rule. 



THE LAW OF NEGLIGENCE 47 

ray v. South Carolina Railroad Co. 15 in 1841. In this 
case a fireman brought suit for injuries caused by the 
negligence of an engineer who refused to alter the 
speed of the train, even after his attention had been 
called to an obstacle on the track which gave rise to the 
accident. In his opinion Justice Evans asserted that the 
plaintiff assumed the risk of the negligence of his fel- 
low-servants and he was not allowed to recover dam- 
ages. There was, however, a very strong dissenting 
opinion. 

While the South Carolina decision stands first in 
point of time, the case of Farwell v. Boston and Wor- 
cester Railroad Corporation 16 has become the leading 
case both in this country and in England. Chief Jus- 
tice Shaw stated in his opinion that the rule that a 
master should be liable for the acts of his servants 
presupposed that the master and the person injured 
"stand to each other in the relation of strangers" — 
and that therefore Farwell, an engineer, could not 
recover on the ground that the corporation was re- 
sponsible for the acts of a switch-tender by reason 
of whose negligence it was alleged he had been in- 
jured. If liability was to be proved it must be shown 
that there was a contract of indemnification, ex- 
press or implied. But the court held that the assump- 
tion of the ordinary risks of the business by the serv- 
ant was an implied term of the contract of employ- 
ment, the compensation, "in legal presumption," be- 
ing adjusted accordingly; and that the risk of a fel- 
low-servant's negligence was an ordinary risk of the 

15 36 Am. Decisions 268. 
"38 Am. Decis. 339- 



48 COMPENSATION INSURANCE 

employment. "We are not aware of any principle 
which should except the perils arising from the care- 
lessness and negligence of those who are in the same 
employment. These are perils which the servant is 
as likely to know and against which he can as effec- 
tually guard, as the master. They are perils incident 
to the service, and which can be as distinctly fore- 
seen and provided for in the rate of compensation as 
any others." 

Whether this rule is an exception to the doctrine of 
respondeat superior or a perfectly natural and 
logical application of the doctrine of assumption of 
risk is a mooted point. It is sufficient to note that 
it is applied only to the relation of master and serv- 
ant. 

Contributory Negligence. — Under the older doc- 
trine of the common law one who was injured by the 
negligence of another was nevertheless barred from 
the recovery of damages if he had, by his own negli- 
gence, in any way contributed to the occurrence of the 
injury. The present doctrine is less harsh, but con- 
tributory negligence will still bar recovery if it is a 
direct cause of the injury. 

Burden of Proof. — In an action to recover damages 
from a master on account of injury the burden of 
proof is on the plaintiff to show : 

/ I. That the master was negligent in the perform- 
ance of his legal duties. 

2. That the negligence of the master was the proxi- 

mate cause of the injury. 

3. If the injury was caused by the negligence of 



THE LAW OF NEGLIGENCE 49 

another servant, that he was not a fellow- 
servant. 
Provided the plaintiff has established the above 
points, in order to escape liability the burden of proof 
is on the defendant to show: 

i. That the servant assumed the risk of the injury, 

or 
2. That the servant by his own negligence contrib- 
uted to the occurrence of the injury. 17 

Death Limitation- — The common law doctrine that 
right of action for personal injury expires with the 
death of the person injured 18 also operates to relieve 
the employer of liability. 

Contracting Out. — It has been the practice of some 
employers to require their employees to sign a contract 
exempting them from all liability on account of per- 
sonal injury, and such contracts have been sustained 
under the common law. 

MODIFICATIONS OF THE COMMON LAW 

The common law of employers' liability has been 
modified to a considerable extent, both by statute and 
by judicial interpretation. The doctrine of assump- 
tion of risk has been made inoperative in the case of 
injuries arising through the violation of safety stat- 

17 While this is the rule in England, in the U. S. Supreme Court, 
and in the majority of the state courts, the courts of certain states 
place the burden of proof on the plaintiff to show an absence of 
contributory negligence. This is true of the courts of Conn., 111., 
Ind., la., La., Me., Mass., Mich., Miss., N. Y. and N. C. 

18 Actio personalis moritur cum persona. 



50 COMPENSATION INSURANCE 

utes by the employer, 19 and the doctrine of compara- 
tive negligence, to the effect that damages shall be re- 
duced in proportion to the negligence attributable to 
the employee, has, in some instances, replaced the 
ruling that contributory negligence is an absolute bar 
to recovery. 20 "Contracting out" has been prohibited 
in practically every state, and the death limitation has 
been removed to permit surviving relatives to recover 
damages for the death of an employee. The burden 
of proof has, in some states, been shifted so as to lay 
a heavier responsibility on the employer. 

Modifications of the Fellow-servant Rule. — The 
doctrine of common employment has been modified to 
a great extent, both by limiting the definition of a 
fellow-servant and by depriving the employer entirely 
of this means of defense. In its extreme application 
the common law considers all employees of the same 
master to be fellow-servants. But many courts have 
used other tests than that of mere common employ- 
ment to determine the status of a servant in rela- 
tion to another who has been injured through his 
negligence. One test is based on the nature of the 
act performed — if the servant is "employed to per- 
form an act, incident to any of the five classes of duties 
which the law imposes upon the master ... he is, as 
to that act, a vice-principal 21 — a true representative 
of his master — and his negligence is the master's 
negligence. If employed to do any other act, he is a 
mere servant, no matter what his rank, and for in- 

19 E. g., Ohio, Mass., Federal Employers' Liability Act. 

20 E. g., Cal., Ga., Ore., Federal Employers' Liability Act. 

21 Italics not in original. 



THE LAW OF NEGLIGENCE 51 

juries resulting to fellow-servants from his miscon- 
duct, the master is not liable/' 22 This test has been 
adopted by the Supreme Court of the United States 
and by most of the state courts. A second test is that 
of the rank or grade of employment of the servant 
through whose negligence the injury is caused — 
c 'where one servant is placed by his employer in a 
position of subordination to, and subject to the orders 
and control of another, and such inferior servant, 
without fault, and while in the discharge of his duties, 
is injured by the negligence of the superior servant, 2 * 
the master is liable for such injury.' " 24 This rule, 
which originated in Ohio, has been accepted by the 
courts of several states, 25 while others have incorpo- 
rated it in statutes. 26 A third test is provided by the 
different department, or consociation, rule. "Under 
this rule servants in different departments" or those 
"not brought into such personal relations that they 
may exercise an influence upon each other promotive 
of their mutual safety, are not fellow-servants." 27 
It has been adopted by the courts in seven states 28 and 
has been applied to railroads by statute in five. 29 
Statutes have also been passed completely abrogat- 



22 Burdick, The Law of Torts, p. 207. 

33 Italics not in original. 

™Berea Stove Co. v. Kraft, 31 Ohio St., 287 (1877), quoted by 
Burdick. 

25 111., La., Neb., Tenn., Tex., Utah, and in a modified form, Ky. 

28 Ala., Mass., N. Y., N. J., Vt, Penn., and as to railroads, 

Miss., Mo., O., Ore., S. C, Utah, Va. 

27 Bailey on Personal Injuries, p. 1551. 

28 111., Ky, La., Mo., Neb., Utah, and as to railroads, Tenn. 

29 Miss., Mo., S. C, Utah, Va. 



52 COMPENSATION INSURANCE 

ing the fellow-servant rule 30 or abolishing it in cer- 
tain industries. 31 In general the various " fellow-serv- 
ant statutes" may be classified under five heads: 

1. Statutes entirely abolishing the defense of fellow- 

servants as to all employers and all em- 
ployees. 

2. Statutes entirely abolishing the defense of fellow- 

servants as to employees of railroads. 

3. Statutes limiting the defense of fellow-servants 

as to employees generally. 

4. Statutes limiting the defense of fellow-servants 

as to all corporations. 

5. Statutes limiting the defense of fellow-servants 

as to employees of railroads. 

6. Statutes merely declaratory of the common law 

rule. Most of such statutes have been re- 
pealed by later statutes. 32 

HISTORICAL DEVELOPMENT 

The first attempt to modify the common law of em- 
ployers' liability by statutory enactment was made in 
England in 1880, when "The Employers' Liability 
Act" was passed by Parliament. This act provided 
for a modification of the fellow-servant rule and en- 
abled the personal representatives of a deceased em- 

30 Cal. and Colo. 

31 For a complete consideration of this point see Bailey, op. cit., 

P- 1553 ff. 

32 This classification is given in Bailey, op. cit, pp. 1553-54. 
Volume II. of this work is wholly given over to the employer's 
defenses and their modification. 



THE LAW OF NEGLIGENCE 53 

ployee to recover damages for death caused by negli- 
gence. The first statute to be passed in this country 
was enacted in Alabama in 1885 and was followed 
by the Massachusetts act of 1887. Both of these 
"employers' liability acts," as well as those of several 
other states, were modeled closely after the English 
statute. A majority of the states . have now passed 
laws defining an employer's liability to his employee, 
practically all of which are in the nature of a limita- 
tion on the employer's defenses. A federal statute 
was enacted in 1908 to apply to inter-state rail- 
roads. 

The law of employers' liability has developed in 
sympathy with the trend of law and opinion in other 
fields. When the first cases involving the relation of 
master and servant were decided the doctrines of in- 
dividualism and laxssez faire were widely accepted and 
the early decisions reflected the prevailing philosophy. 
To be sure, the rules laid down in employers' liabil- 
ity cases can be deduced from established principles of 
the general law of negligence but the rigidity of their 
application depends largely on the economic philoso- 
phy of the presiding judge. Reasoning from the prin- 
ciple of respondeat superior, it would seem that the 
master could be held liable for the consequences of 
acts of fellow-servants quite as logically as he was 
exempted from them under the assumption of risk 
doctrine. Speaking of the fellow-servant rule an emi- 
nent English jurist says, "The Courts, between 1830 
and 1840, curtailed the extent of an employer's liabil- 
ity by grafting upon it an anomalous limitation. . . . 
It belonged to the era of individualism, and was sup- 



54 COMPENSATION INSURANCE 

ported by the economic theory, of dubious soundness, 
that when a person enters into any employment . . . 
the risks naturally incident to his work are taken into 
account in the calculation of his wages." 33 That 
Chief Justice Shaw in the Farwell case did not base 
his decision wholly on grounds of strict legal logic 
is evident from his statement that "it is competent 
for courts of justice to regard considerations of policy 
and general convenience, and to draw from them such 
rules as will, in their practical application, best pro- 
mote the safety and security of all parties concerned." 
So in cases involving the doctrines of contributory neg- 
ligence and assumption of risk the tests of the circum- 
stances which shall justify their application are quite 
likely to be colored by the economic philosophy of the 
judges. It has already been pointed out that tests 
of varying severity have been applied under the fel- 
low-servant rule to determine who shall be consid- 
ered fellow-servants. 

With changes in the organization and methods of 
industry the inadequacy of the philosophy of laissez 
faire and the injustice of the common law principles 
of employers' liability became increasingly evident and 
there developed a desire to remove some of the limita- 
tions on the employee's right of recovery. That this 
desire manifested itself largely in the form of statutes 
is probably due to the fact that legislative bodies are 
more responsive to public opinion than is the bench, 
and also because judges are loath to run counter to a 
well-established body of legal doctrine. It was nat- 

83 Dicey, "Law and Opinion in England," p. 280. 



THE LAW OF NEGLIGENCE 55 

ural that the fellow-servant rule, which gave rise to 
the greatest injustice, should first be attacked, and the 
early "employers' liability acts" had as their main pur- 
pose the placing of an injured servant in the same le- 
gal position as a stranger if the injury was caused 
under certain circumstances. These laws also re- 
moved the death limitation but limited the amount 
which might be recovered either by the injured serv- 
ant or by his heirs. 34 These and succeeding statutes 
have attempted to equalize the advantages of employer 
and employee and have put into effect a philosophy 
which recognizes that individualism means exploita- 
tion and that the state must lay down positive rules 
to secure justice between master and servant. 

The Federal Employers' Liability Act of 1908, 
modifying all of the old doctrines by which the em- 
ployer sought to escape liability, is in marked con- 
trast to the earlier statutes which attempted to re- 
move only the most evident defects of the common 
law. 

REFERENCES 

Bur dick's Law of Torts, 3d ed., Banks & Co., Albany, 
N. Y. (1913), Chap. IV. §§ 3, 4, Chap. XV. §§ 1-4. 

Shearman and RedHeld on the Law of Negligence, 6th ed. 
Edited by Robert G. Street, Baker, Voorhis, & Co., 
New York (1913). Parts I, II, & VIII. 

Bailey on Personal Injuries, 2d ed., Callaghan and Co., 
Chicago (1912). 

Bohlen, Francis H. "Voluntary Assumption of Risk," 
I, II, 20 Harvard Law Review 14, pi (1906). 

34 cf. Mas6. Employers' Liability Act of 1887. 



56 COMPENSATION INSURANCE 

Burdick, Francis H. "Is Law the Expression of Class 
Selfishness?" 25 Harvard Lazv Review, 349 (1912). 

Dicey, A. V. "Law and Opinion in England," Macmillan, 
London (1905). Pp. 279-283. 



CHAPTER V 

CRITICISM OF THE SYSTEM OF EMPLOYERS' 
LIABILITY 

The system of employers' liability proceeds on the 
theory that the economic loss occasioned by an indus- 
trial accident should be borne by the person injured 
unless he can show that some other person is directly 
responsible, through a negligent act or omission, for 
the occurrence of the accident. If such personal re- 
sponsibility can be proved the guilty party is liable 
in damages which are supposed to compensate for the 
loss sustained because of the injury. This does not 
mean that the employee is considered to have been at 
fault in the event that he is unable to attach liability 
to another. Many accidents arise from the methods 
of carrying on a business, responsibility for which 
must be assigned to conditions rather than persons. 
The concept of personal fault which is at the basis 
of employers' liability prevents recovery for the re- 
sults of accidents of this nature and the workman 
must bear the loss incurred. All of which is but one 
phase of the general philosophy of laissez faire which 
holds that men should bear the consequences of their 
own conduct and of the normal conditions in which 
they find themselves. 

Liability on the part of an employer may be estab- 

57 



58 COMPENSATION INSURANCE 

lished only by means of a suit at law. The courts, in 
determining the existence of fault as a basis for lia- 
bility, are guided by the rules of negligence law and 
by the various statutes which have been passed in mod- 
ification of these rules. It is, therefore, to be borne 
in mind that, in order to collect damages, an em- 
ployee must prove legal liability, which may or may 
not coincide with one's ideas of moral liability and 
justice. 

That dissatisfaction with the operation of the law 
of negligence in its extreme form has been widespread 
is evident from the universal enactment of statutes de- 
signed to extend the liability of employers and to fa- 
cilitate recovery by workmen. Limitations have been 
removed, responsibility has been broadened, and a new 
body of law created. But even the continued attempts 
of law-makers over a period of nearly forty years 
have failed to produce a system of employers' liability 
which satisfactorily adjusts the distribution of eco- 
nomic loss. Such attempts, where they have not been 
defeated by the extremely conservative interpretation 
of the courts, have resulted only in removing some 
of the more striking defects of the system. 

A criticism of the practical operation of employers' 
liability should seek to determine to what extent it 
accomplishes its fundamental purpose, the solution 
of the problem created by industrial accidents. In 
so far as that purpose is not completely accomplished 
the system is defective and it should be corrected or 
other means adopted to the same end. The employing 
and employed classes as well as society at large are 
concerned in its contribution. 



CRITICISM OF EMPLOYERS' LIABILITY 59 

The Employee's Criticism. — i. A large share of in- 
dustrial accidents are entirely uncompensated and the 
economic loss resulting from them must be borne by 
the workman or his dependents. Figures collected 
by the New York Employers' Liability Commission 
show that, of 114 fatal industrial accidents occurring 
in Erie County during the years 1907 and 1908, 33.3% 
were entirely uncompensated ; and of 6y fatal cases in 
the Borough of Manhattan during 1908, 26.9% were 
not compensated. 1 In Wisconsin no compensation 
was paid in J2 out of a total of 306 non-fatal cases, or 

23-5% 2 

A study of conditions in Pittsburgh showed that 

no payment of compensation was made in 59 out of 
235 cases of married men killed in industry, a percent- 
age of 25. 1. 3 

Nine insurance companies doing business in New 
York reported that payments were made to em- 
ployees under policies assuming the employers' lia- 
bility risk in only one case for every eight notices 
of accident. 4 Investigations in other states have shown 
similar conditions to exist. 

2. Where compensation is obtained it bears no true 
relation to economic need. The table on page 60 shows 
the complete results of the Erie County study men- 
tioned above, the amount of compensation recovered 
being : 



1 Report to the Legislature of the State of N. Y ., 1910, p. 20. 

2 Reports of the Bureau of Labor and Industrial Statistics, 
V. 13, P- 54- 

3 Eastman, "Work Accidents and the Law," p. 121. 

4 Report to the Legislature of the State of N. Y., 1910, p. 25. 



60 COMPENSATION INSURANCE 



o in 38 cases 

$100 or less in 9 " 

$101 to $500 in 34 " 

$501 to $2000 in 14 " 

Over $2000 in 8 " 

Suit pending in 11 " 



81 out of 103, or 78.6% of 
closed cases. 



Total .... 114 cases 

Seventy-eight and six-tenths per cent of the fam- 
ilies where decisions had been rendered received $500 
or less as the entire compensation to pay funeral ex- 
penses and replace the earnings of the workman. The 
Labor Department of New York investigated ten cases 
in which accidents had left the workmen in a totally 
helpless condition for the remainder of life; in one 
of these the suit was still pending and, in the other 
nine, three received nothing, while none of the six 
remaining received over $500. The records of the 
Wayne Circuit Court of Michigan show that, of twen- 
ty-two men partially disabled for life, twelve received 
no compensation, while the remaining ten were award- 
ed amounts varying from $200 to $5,75o. 5 In her 
study of accidents in the Pittsburgh district Miss East- 
man found that "for the death of 53 per cent of the 
married men, and 65 per cent of the single men con- 
tributing to the support of others, no compensation 
above reasonable funeral expense was made ; in the in- 
jury cases, 56 per cent of the married men, 66 per 
cent of the single contributing men, and 69 per cent of 

5 Report of the Employers* Liability and Workmen's Compen- 
sation Commission, 1911. 



CRITICISM OF EMPLOYERS' LIABILITY 61 

the non-contributing men received nothing to make 
up for lost income." 6 After an extensive comparison 
of economic loss to workmen and receipts from em- 
ployers the New York Commission says that their fig- 
ures strengthen the conclusion "that the bulk of the 
accident loss is borne by the injured workmen and 
their families. They [the figures] emphasize also the 
fact that the results of the present law are arbitrary 
and unequal, that a few of the injured get large ver- 
dicts while many get nothing. Thus, in the temporary 
disability cases a comparison of totals shows that em- 
ployers paid nearly one-third of the loss, but yet in 44 
per cent of these cases they paid nothing. In per- 
manent partial disability cases, payments from em- 
ployers averaged one-third of the loss until return to 
work, and yet over one-third of these disabled men 
received nothing. In the 111 fatal cases compen- 
sation averages 17.1 per cent of the first three 
years' loss, but nearly half of the dependents got noth- 
fog." * 

Commenting further, the same body says, "From 
our detailed investigation, borne out as it is by the 
results of similar studies in states where the same 
general law prevails, and strengthened by testimony 
given before us, we are brought to the conclusion 
that under our employers' liability laws a large pro- 
portion (over 50. per cent) of the workmen injured 
by accidents of employment and the dependents of 
those killed get nothing or next to nothing, and that 

8 "Work Accidents and the Law," p. 127. 

7 Report to the Legislature of the State of New York, 1910, 
P- 23. 



62 COMPENSATION INSURANCE 

only a very small proportion recover an amount that 
is in any way commensurate with their loss." 8 

3. In order to recover damages it is necessary for 
the plaintiff to sacrifice a considerable portion of the 
gross amount in lawyer's fees and costs. The Labor 
Department of New York found that in 151 acci- 
dent cases, 97 of which were settled directly between 
the parties, "the total amount of plaintiffs' fees and 
costs amounted to 22.7 per cent of the total gross re- 
ceipts from employers." The contingent fee system, 
under which a lawyer agrees to prosecute a case in 
return for a percentage of whatever damages he may 
recover, is a large factor in increasing legal costs. 
Agreements of this type are common in employers' lia- 
bility cases since the workman is usually unable to 
employ an attorney on any other basis and since "am- 
bulance chasers," the crooks of the legal profession, 
actually solicit this kind of business. 9 In New York 
the following results were obtained in an investigation 
of 51 cases. 10 ' 

Size of Fee No. of Cases 
Less than 25 per cent in 14 

25 per cent to 34.9 per cent in 16 

35 per cent to 49.9 per cent in 7 

50 per cent and over 14 

Total 51 

8 Report to the Legislature of the State of New York, igio, 
p. 26. 

9 The workman is, of course, at a great disadvantage in being 
obliged usually to employ an inferior attorney. 

10 Report to the Legislature of the State of New York, 1910, 
P- 31. 



CRITICISM OF EMPLOYERS' LIABILITY 63 

And these conditions are in no way peculiar to New 
York. 

4. Compensation is frequently received only after 
long delay spent in litigation. The courts are so over- 
loaded with work that delays of two years in bring- 
ing cases to trial are not uncommon and when it be- 
comes necessary to follow a case through a succes- 
sion of appeals it may take eight years or more be- 
fore a final verdict is reached. During all this time 
the workman or his dependents are receiving no com- 
pensation and may be undergoing additional expense 
for medical treatment or court costs. 

The Employer s Criticism. — 1. The employer has 
been forced by the system to pay out large sums of 
money for the defense of claims and in satisfaction 
of verdicts, much of which has failed to reach his 
injured men. If he employs an insurance company 
to fight claims a half or more of his premiums goes to 
pay the salaries of officers, the commissions of agents, 
and the expenses of conducting the insurance business. 
If he maintains a claim department of his own he must 
employ expert lawyers, bear the court costs in liti- 
gated cases, and satisfy claims which are compromised 
or in which an adverse verdict is rendered by the 
courts. 

2. Friction between employer and employed often 
arises out of claims for damages whether or not they 
reach the stage of law-suits. The workman feels that 
he should get compensation for injuries incurred in 
the course of employment while the employer is in- 
clined to think that any aid he may give is a matter 
of generosity rather than of duty. If the question 



64 COMPENSATION INSURANCE 

comes before the courts the friction is increased and 
the enforced expenditure creates actual antagonism. 
The New York Commission says : "That the pres- 
ent law, with its uncertain and uneven chances, pro- 
motes distrust and ill-will between employers and em- 
ployees to a serious extent we are convinced from the 
testimony of both. In our public hearings and in 
the replies received to our inquiries this was a very 
frequent complaint." 11 That this situation results 
in lowered efficiency cannot be doubted. 

Society s Criticism. — Since the aim of organized 
society is to promote the best interests of all the classes 
composing it, any system which operates to the disad- 
vantage of a class is to some extent opposed to the 
purposes of society itself. Therefore society is con- 
cerned with the criticisms of the employer and of the 
employee and should seek to remove the conditions 
which give rise to them. 12 But there are other de- 
fects which do not concern these classes so intimately 
and which do affect society at large. 

1. The cost of hearing negligence cases represents 
a very large share of the expense of maintaining the 
courts. Estimates vary in assigning anywhere from 
one-fifth to two-thirds of the time of the courts to this 
form of litigation. 

2. Uncompensated or insufficiently compensated in- 
dustrial accidents give rise to economic dependence 

11 Report to the Legislature of the State of New York, 1910, 

p. 33- 

12 This is particularly true of the economic waste involved in 
lawyer's fees and the maintenance of claim organizations which 
serve no constructive purpose. 



CRITICISM OF EMPLOYERS' LIABILITY 65 

and destitution, the burden of which is transferred to 
society through various forms of charitable relief. 

3. Other less specific evils are the bad moral effect 
of enforced pauperization, and the misrepresentation 
and perjury induced by the desire to win law-suits. 

Summary. — The defects of the system have been 
ably summarized as follows: — 

"1. It is wasteful: 

(a) The state expends a large amount in fruit- 
less litigation. 

(b) Employers spend a large amount, as the re- 
sult of work-accidents, only a small part of 
which is actually paid in settlement of acci- 
dent claims. 

(c) The injured employees spend nearly half of 
what they get in settlements and damages to 
pay the costs of fighting for them. 

"2. It is slow; recovery is long delayed, while the 
need is immediate. 

"3. It fosters misunderstanding and bitterness be- 
tween employer and employees. • 

"4. It encourages both parties to dishonest meth- 
ods." 13 

Other Attempts to Solve the Accident Problem. — 
Three other methods of solving the economic problem 
of industrial accidents have been tried ; the encourage- 
ment of saving by the workman, industrial accident 
insurance, and corporate relief and pension schemes. 
None of these approaches a sufficient solution. Even 

"Eastman, "Work Accidents and the Law," p. 206. 



66 COMPENSATION INSURANCE 

where a workman has the will to save, his earnings 
do not permit an adequate accumulation, and if they 
cease at an early age the difficulty is increased. In- 
dustrial accident insurance, sold to workingmen on 
the weekly or monthly payment plan is bought at an 
excessive jcost, and rarely returns benefits commen- 
surate with loss of income. The relief associations 
of certain corporations afford substantial help, but they 
are far from giving adequate compensation and ac- 
ceptance of their benefits usually involves conditions 
highly disadvantageous to the employee. Besides, they 
are not always safe or permanent. 

Conclusion. — Having viewed the problem arising 
from industrial accidents and the failure of the pres- 
ent system of employers' liability as a method of solu- 
tion, the next logical step is to seek a real remedy. 
Can this be found in an amendment of the present 
system of law, in the extension of present voluntary 
methods, or must a new scheme be devised and sub- 
stituted for the old one? The history of legislative 
and judicial attempts to mold the common law into 
an adequate remedy and the testimony of experts rep- 
resenting all interests point to the undeniable fact that 
the system of employers' liability is basically wrong 
and that any attempt at a solution which does not re- 
move this fundamentally unsound body of doctrine 
will be abortive. The same is true of the various vol- 
untary substitutes which have been tried. Thirty-two 
of our states, 14 appreciating these facts, have dis- 
carded the old common law doctrines and have substi- 

"Dec. i, 1916. 



CRITICISM OF EMPLOYERS' LIABILITY 67 

tuted the more just and practical scheme of Work- 
men's Compensation. 

REFERENCES 

Report to the Legislature of the State of New York by 
the Commission ... to inquire into the question of 
employers' liability and other matters. First Report, 
March 19, 19 10. 

Rubinow, I. M. "Social Insurance," Holt, New York 
(1913). Chap. VI. 

Eastman, Crystal. "Work Accidents and the Law," 
Charities Publication Committee, New York (1910). 
Chap. XIII. 

Report of the Employer's Liability and Workmen's Com- 
pensation Commission. Lansing, Michigan (1911). 

Reports of the Bureau of Labor. Madison, Wisconsin 
(1907-8). Vol. XIII, Part I. 



CHAPTER VI 
THE THEORY OF WORKMEN'S COMPENSATION 

The problem of compensating workmen for loss re- 
sulting from industrial accidents is essentially social 
and economic ; social, because it is a direct concern of 
organized society; economic, because the loss must be 
measured in terms of economic welfare and because 
the compensation should be proportioned to the loss 
so measured. It should be remembered that the legal 
problem is secondary although vital ; it consists in ex- 
pressing, in the form of legislation, the judgment of 
society. Such legislation lays down rules governing 
the method of compensation and empowers public offi- 
cials to administer and interpret the law, but it is 
only a vehicle for the accomplishment of socio-eco- 
nomic purposes. 

It is evident that the methods which have been used 
in the past and which are still in use in sixteen states 
have become increasingly unsatisfactory. The opera- 
tion of the system of employers' liability has resulted 
in injustice to all classes and, with the development 
of industrial conditions, the injustice has been aggra- 
vated. Commencing with the Industrial Revolution 
in the early nineteenth century the conditions under 
which industry has been carried on have gradually 
changed and a need for some new method of compen- 

68 



THEORY OF WORKMEN'S COMPENSATION 69 

sation has been created. This need has been brought 
about by changes in industrial relations and by the in- 
troduction of machinery. Alongside the industrial de- 
velopment there has grown up a new body of social 
thought demanding recognition of changed conditions 
and seeking some means of providing adequate and 
just compensation for workmen who suffer loss 
through industrial accidents. 

Changes in Industrial Relations. — The change from 
the domestic system of industry to the factory system 
involved a complete reorganization of the personal 
factors in industry and created those labor problems 
which are due to the differentiation of employer and 
employed. It is natural that the law of master and 
servant should have developed pari passu with the 
factory system and with the increasing opposition of 
interests of the two great social classes. The feeling 
of opposition and the disputes and injustice which 
have arisen from it were inherent in the growth of a 
new method of conducting business, one in which the 
principals were not properly orientated. The change 
in industrial relations evolved in three different as- 
pects : 

I. Under the domestic system all work was done on 
a personal basis, the workman was a member of his 
employer's family and the employer was no more 
than a highly developed workman. It was quite pos- 
sible for any artisan, having passed through the stages 
of apprentice and journeyman, to become a master 
himself. Socially all were on the same level and per- 
sonal and industrial interests were mutual. In case 

of injury and sickness the master was expected to care 
6 



70 COMPENSATION INSURANCE 

for the members alike of his industrial and of his fam- 
ily group. But the factory system demanded capital, 
usually more than any one man was prepared to fur- 
nish, and the modern corporation was created to sat- 
isfy the demand. The corporation consists of a group 
of men who furnish capital and whose chief interest 
is in the financial side of a business, the actual carry- 
ing on of technical processes usually being entrusted 
to a hired manager who, in turn, in a large undertak- 
ing, delegates his functions to assistant managers, su- 
perintendents, and foremen. Hence the personal ele- 
ment in industrial relations largely disappears — even 
personal acquaintance between master and man van- 
ishes. With the personal element gone the mutual in- 
terest which prompted aid and care is also lost. The 
employer now looks on his business as a means of ac- 
quiring wealth and power and the workman seeks to 
secure the largest possible return from a minimum 
amount of labor. The manager's remuneration is 
based on his efficiency in returning profits to the em- 
ployer and his interests naturally lead him to con- 
duct the business at the lowest possible cost. Aid 
in any appreciable amount has, until very recently at 
least, usually been denied to injured workmen and 
their families unless forced by a decree of the court. 
Compensation for industrial accidents has been re- 
garded as an unwarranted expense totally opposed to 
the interests of the employer, who was not conscious 
of any direct personal relationship with his employee. 
2. Industrial relations have become not only imper- 
sonal but highly complicated. Division of labor has 
necessitated the creation of many departments in an 



THEORY OF WORKMEN'S COMPENSATION 71 

industry, each employing a group of laborers and each 
contributing a share of the work necessary to manu- 
facture a finished product. The heads of departments 
are responsible to the superintendent of the plant, the 
superintendent to the manager, and the manager to the 
board of directors, which represents the stockholders. 
Besides those concerned directly with the finished 
product of the industry, there are other groups which 
have a relation to the plant as a whole, repair men, 
construction gangs, and men concerned with motive 
power and its transmission. 

Such conditions are responsible in a high degree for 
rendering unsatisfactory a system of compensation 
based on employers' liability. Employers' liability is 
governed by the principle of personal fault and in 
order to establish the existence of fault it is necessary 
to prove that an injury was caused wholly and directly 
by a particular person. The complicated relationships 
of the modern factory system have rendered this prac- 
tically impossible, since the cause of almost every acci- 
dent is a complex of the actions or neglect of a great 
number of persons, principals and subordinates. 

3. In order to bring productive organization to its 
highest efficiency it has been found necessary to in- 
tegrate and consolidate industry and to arrange the 
units of a large corporation so that each will contribute 
its utmost to the final product. In this process or- 
ganization as such has come to mean more to the suc- 
cess of an undertaking than any other feature. The 
importance of organization which has carried with it 
definite rules and plans has meant the still further re- 
pression of the individual and has minimized his con- 



72 COMPENSATION INSURANCE 

tribution to the final result. The individual has been 
lost in the mass and the removal of a workman and 
substitution of another is now a less significant occur- 
rence than formerly. 

Change from Handicraft to Machinery. — The prime 
factor in the establishment of the present industrial 
system was the introduction of machinery and the sub- 
stitution of mechanical power for manual labor. This 
has had two general effects which bear directly on the 
problem of industrial accidents: 

1. The risk of accident has become greater; posi- 
tively, through the introduction of dangerous machin- 
ery and increased speed of operation, and negatively, 
through the lowered skill of the workman and the em- 
ployment of untrained immigrant labor. The im- 
provement of methods in the steel industry and the 
progress of invention have constantly enlarged and 
complicated machines, and every enlargement and com- 
plication has increased the danger to the operator. 
Superior organizations, improvements in mechanical 
arts, and the production of finer grades of construc- 
tion materials have increased the speed at which ma- 
chines have been operated and have rendered less de- 
liberate the movements of attendants. The invention of 
machines to perform delicate technical processes for- 
merly accomplished only through hand work has made 
possible the employment of a lower grade of labor- 
ers, at once less able and less careful. The inability 
of immigrant laborers to understand the English lan- 
guage has been another factor in increasing the prob- 
ability of accident occurrence. 

2. The use of machinery to perform the greater 



THEORY OF WORKMEN'S COMPENSATION 7S 

part of work once done by hand has contributed with 
the development of organization to the repression of 
the individual. The workman in many industries acts 
merely as a feeder and attendant to the machine, the 
mechanism of which now accomplishes the larger and 
more technical part of the work. Good machines are 
more important than skilled workmen and they have 
absorbed much of the attention formerly given to se- 
lecting and caring for individual employees. 

The Growth of Cities. — The growth of cities with 
large manufacturing populations should be noted in 
connection with industrial accidents, for it has aggra- 
vated the severity of the problem. Wages in cities 
seldom exceed the minimum necessary to sustain life, 
and preclude effective help being given an injured 
workman by others of his class, a condition obtaining 
to a much less degree in the country. If a man is not 
totally disabled he is usually able to scrape together 
a bare living himself in the country districts, but this 
is not true of the congested areas of large cities. 

New Social Ideas. — Changes in industrial condi- 
tions have made old theories and methods of accident 
compensation largely nugatory in actual practice; at 
the same time new social ideas have gained currency 
which have resulted in an almost complete reversal 
of attitude on the part of economists, legislators, and 
even employers : 

i. The generally accepted theory of the limitations 
on governmental action has undergone a considerable 
development. It is still agreed that the government 
should undertake only those tasks which can be more 
effectively accomplished by its agency and can not well 



74 COMPENSATION INSURANCE 

be left to individual initiative and responsibility. For 
long this was interpreted to cover only those affairs 
with which the government must concern itself in or- 
der to exist, such as the maintenance of order, the 
dispensation of justice and the carrying on of essen- 
tial public works. Governmental interference with 
the affairs of the individual was not to extend beyond 
an unavoidable minimum. But now its function is of 
a more constructive nature, the actions of the individ- 
ual are regulated to the end that greater social wel- 
fare may obtain and enterprises are undertaken by 
government which might be carried on, but less effec- 
tively, by individual initiative. 

« 

2. The development of the concept of liberty has 
been consonant with the change in governmental the- 
ory. The older and negative concept defined liberty 
as freedom from interference, the newer positive view 
recognizes that restraint and regulation may result in 
greater real freedom and wider privileges. In trans- 
portation, for example, regulation of common car- 
riers has thoroughly substantiated this principle. 

3. The elimination of waste through conservation 
of resources has its application to industrial accidents, 
for every workman lost through death or disability 
lowers the efficiency of the working force as a whole. 
Society has invested a certain portion of its resources 
in bringing men to the working age and social econ- 
omy demands the fullest possible use of the productive 
capacity of each working unit. 

4. In recent years there has been a considerably 
greater interest in the welfare of all classes from a 
humane point of view. The leisure class has to some 



THEORY OF WORKMEN'S COMPENSATION 75 

extent justified itself through the activities of some 
of its members who have become interested in social 
betterment and who have drawn attention to the suf- 
fering caused by industrial accidents. They have la- 
bored to improve industrial conditions by eliminating 
causes and securing remedial legislation. 

5. The working class itself has done much toward 
accelerating investigation and improvement of condi- 
tions. It has organized and become educated both 
through its own efforts and through the aid of philan- 
thropists and social scientists so that expressions of 
opinion on its part are something more than a forlorn 
cry for help. Education and organization carry with 
them a demand for recognition and a new kind of 
treatment, a demand for justice rather than mercy. 

WORKMEN'S COMPENSATION 

The application of modern social thought to the in- 
dustrial accident problem and to the unsatisfactory 
conditions under the system of employers' liability re- 
sulted in the almost universal conviction that a radical 
change was necessary, that there must be nothing less 
than the elimination of the old system and the substi- 
tution of a basically new scheme. A complicating fea- 
ture in the solution of the difficulty lay in the dual na- 
ture of the workman, who is both the means and the 
end of production. As a producer he is expected to 
make the greatest possible use of his productive ca- 
pacity, as a consumer he is entitled to the greatest 
possible use of the product consistent with like enjoy- 
ment on the part of other members of society. The 



76 COMPENSATION INSURANCE 

balance must be struck in such a way as to reconcile 
these apparently inharmonious viewpoints. 

The industrial world has quite generally agreed on 
the substitution of the principle of workmen's compen- 
sation for that of employers' liability and practically 
every European country and the majority of the states 
have adopted laws which, to a greater or less degree, 
apply the new principle. 

Definition of Workmen's Compensation. — Work- 
men's Compensation is the indemnification of a work- 
man or his dependents by an industry for any eco- 
nomic loss due to injuries suffered because of his con- 
nection with the particular industry. 1 The burden of 
cost of compensation is usually placed upon the em- 
ployer as the representative of the industry. 

Basis of Workmen's Compensation. — Workmen's 
Compensation is variously defended on grounds of 
expediency and justice. From either viewpoint a 
strong case may be established; when both are con- 
sidered the argument is irresistible. The leading 
points urged in justification of the principle fall under 
four heads : 

I. Industry is responsible for the occurrence of a 
large majority of industrial accidents; 2 therefore, in- 
dustry should be compelled to bear any loss which may 
result. 3 The provable majority is so large and the de- 

1 In actual practice, of course, the working class is not indem- 
nified for the entire loss. Practical considerations make it neces- 
sary to modify the ideal in some degree. 

2 V. supra, pp. io, n. 

3 The principal argument in support of workmen's compensa- 
tion is based on the principle of fault but the old narrow inter- 
pretation recognizing only personal fault has been superseded. 



THEORY OF WORKMEN'S COMPENSATION 77 

termination of fault in the remaining cases is so diffi- 
cult that expediency demands the extension of the 
principle to all accidents. Further, an industry which 
is not able to bear the loss occasioned by its .accidents 
and which exists only by forcing others to bear the 
loss is parasitic and its expenses of production are not 
a true measure of cost. 

2. Any workable scheme of compensation necessa- 
rily involves medical and surgical care of the injured 
and such care results in a net gain to individual indus- 
tries and to society. Discarding of injured workmen 
is no more justifiable than a refusal to repair damaged 
machinery. 

3. Society has accepted the idea that the needy should 
be cared for in all possible cases. Workmen's com- 
pensation is an application of this idea to a specific 
problem. 4 

4. The provision in workmen's compensation 
laws that an industry shall bear the burden of cost 
of its accidents does not mean that the burden will be 
ultimately borne by the employer as such. It does 
mean that the expense of producing any particular ar- 
ticle will more accurately represent its real cost and 
that the selling price will be fixed accordingly. The 
loss from industrial accidents will be borne by the con- 
sumer of the commodity the production of which has 

4 It should be recognized that compensation according to need is 
not justified by the argument that the industry is responsible for 
economic loss. For example, industry is responsible for the cut- 
ting off of a workman's wages through accidental death but is 
not responsible in proportion to the size of the man's family. 
Compensation for dependents in proportion to their number can 
be defended only on grounds of expediency. 



78 COMPENSATION INSURANCE 

occasioned it. If the inclusion of this item in the cost 
of production makes necessary such an increase that 
the selling price becomes prohibitive, it is proved that 
the continued existence of the industry is justified only 
on grounds which would warrant governmental aid. 

Conclusion. — Workmen's compensation is only one 
aspect of the gradual systematizing of human affairs. 
In private business cost accounting has succeeded in 
allocating many expenses formerly regarded as gen- 
eral and incapable of being charged to specific ac- 
counts. By this process the cost of conducting each 
separate department of a business becomes known. 
Likewise the capacity of each department to produce 
income is more accurately known and its worth is 
computed by a comparison of income and expense. 

So organized society may be regarded as a huge 
business of which the various industries are depart- 
ments. A comparison of the social cost of maintain- 
ing an industry with the return in terms of social wel- 
fare should be made to determine its net worth, bear- 
ing in mind that the apparent costs and returns in 
terms of money are not a final measure of either side 
of the account. The enactment and operation of work- 
men's compensation laws enable a more accurate esti- 
mate of the cost of carrying on industry and are an aid 
to a more equitable judgment of its net social worth. 

REFERENCES 

Rubinow, I. M. "Social Insurance." Holt & Co., New 
York (1913). Chapters I, VII, and XXIX. 

Seager, H. R. "Social Insurance." Macmillan, New 
York (1910). Chapters I, II, and III. 



CHAPTER VII 

HISTORICAL DEVELOPMENT OF WORKMEN'S COM- 
PENSATION IN FOREIGN COUNTRIES 

Workmen's compensation, while new to the United 
States, has been long established in European coun- 
tries and in the British colonies. More recently it has 
been adopted in Japan and in certain South Ameri- 
can countries and, at the end of 191 6, forty -nine 
foreign governments had enacted compensation laws. 
These laws differ in scope and method but they are all 
based on the principle of providing indemnity for in- 
jury regardless of personal fault and are the result of 
the development of modern industry and ideas and of 
a complete dissatisfaction with the system of employ- 
ers' liability. 

The germs of the present compensation system ex- 
isted over a century ago in the mining industries of 
Austria and Germany where the first attempts were 
made to provide for accident relief. In these coun- 
tries as well as in others "liability laws" were enacted 
which made less difficult the securing of indemnity but 
which continued to recognize the fundamental idea of 
personal negligence as a cause of action. Such laws 
expressed a desire to correct existing unsatisfactory 
conditions combined with unwillingness to adopt an 
entirely new and revolutionary principle. Conviction 

79 



80 COMPENSATION INSURANCE 

of the necessity of radical treatment becoming nearly 
universal, it has been expressed by the gradual adop- 
tion and extension of workmen's compensation. Each 
country passed through much the same stages of de- 
velopment before making the final step and a study of 
the growth of the new idea reveals a repetition of 
arguments pro and' con, the same clash of interests, 
and at last the general agreement on the wisdom of 
shifting the burden of industrial accidents from the 
employee to the industry. 

The following table shows the dates of enactment 
of compensation laws in foreign countries : 1 

Dates of Enactment of Foreign Compensation Laws 

„ Date of Enactment „ Date of Enactment 

Country , . . , . Country , . . 

of original law of original law 

Germany 1884 Greece (mining, quar- 

Austria ' 1887 rying, metallurgy, 

Norway 1894 etc., only) 1901 

Finland 1895 Sweden 1901 

Great Britain ^97 Western Australia . . 1902 

Denmark 1898 Luxemburg 1902 

Italy 1898 British Columbia . . . 1902 

France 1898 Russia 1903 

Spain 1900 Belgium 1903 

New Zealand 1900 Cape of Good Hope. 1905 

South Australia .... 1900 Queensland 1905 

Netherlands 1901 Venezuela (mining 

only) 1906 

1 Based on a table in Bulletin No. 126 of the U. S. Bureau of 
Labor Statistics. The law enacted in 1914 by the Union of South 
Africa superseded the older laws of the Cape of Good Hope and 
of the Transvaal. 



HISTORICAL DEVELOPMENT 81 

Date of Enactment •„ Date of Enactment 

Country . • • , , Country Q r or ; CT i na i j aw 

of original law Ui U11 e= llld - 1 ltiW 

Mexico — Nuevo Leon 1906 Montenegro 191 1 

Hungary 1907 Japan 191 1 

Transvaal 1907 San Salvador 191 1 

Newfoundland 1908 Switzerland 1912 

Alberta 1908 Roumania 1912 

Bulgaria 1908 Portugal 1913 

Quebec 1909 Ontario 1914 

Manitoba 1910 Union of South 

Nova Scotia 1910 Africa 1914 

Liechtenstein 1910 Argentina 1915 

Servia 1910 Colombia 1915 

New South Wales.. 1910 Victoria 1915 

Tasmania 1911 Cuba •. . . . 1916 

Peru 191 1 Chile 1916 

Early laws were frequently restricted in scope and 
amendments have been added in most cases which 
bring a large proportion of the working population un- 
der their provisions. Many changes have also been 
required as a result of experience and in some cases 
complete revisions of the laws have been made. 

There is a tendency in Europe, particularly in the 
more advanced countries, to look upon workmen's 
compensation as merely a part of a broad scheme of 
social insurance, including also sickness, invalidity, 
unemployment, and life insurance, old-age pensions, 
maternity benefits, etc. It is probable that, at some 
time in the future, each country will have a complete 
insurance code embodying provisions for these several 
risks and treating them as varying aspects of a single 
great problem rather than as isolated phenomena. 



82 COMPENSATION INSURANCE 

Germany and Great Britain have already gone far in 
this direction, the former with the Imperial Insur- 
ance Ordinance, and the latter with the National In- 
surance Act, both enacted in 191 1. 

A knowledge of the development of workmen's com- 
pensation in these two countries is especially helpful 
to the American student since the idea originated in 
Germany and has reached its highest development 
there, and since the institutions and industrial develop- 
ment of Great Britain most closely resemble our own. 
The following brief historical review is intended to 
serve as an introduction to the history and more de- 
tailed study of compensation in the United States. 

GERMANY 

Early Laws. — Like other countries, Germany 
passed through a long period of preparatory liability 
legislation before squarely adopting workmen's com- 
pensation. "Very early the Prussian laws recognized 
the obligation of the master to care for his servant 
during disability. This obligation was implied in the 
labor contract and the master could be compelled to 
pay for medical attention to his servant. The em- 
ployer was also held responsible for accidents to serv- 
ants in his employment due to his negligence, and was 
bound to care for the injured until restored. Similar 
laws protected the crews of vessels. In case of acci- 
dent during the voyage, the master was liable for med- 
ical attendance, as well as for the expense of the voy- 
age home. This applied even though the disability 
of the sailor were from sickness. In case of his death 



HISTORICAL DEVELOPMENT 83 

while on a cruise, provision was made for the support 
of his dependents by the employer." 2 

The first Prussian statute requiring the payment of 
indemnity for industrial accidents was that of Novem- 
ber 3, 1838, which made railroad companies liable 
for accidents alike to employees and to passengers. 
The companies could escape liability only by proving 
that the accident had occurred through the negligence 
of the person injured or killed or through an "Act of 
God." 

Laws were passed in 1845, x 849, and 1854 to en- 
courage the formation of organizations of working- 
men for the purpose of accident and sickness relief. 
The last of these laws required that employees in 
certain trades should join trade guilds to which em- 
ployers were compelled to contribute one-half of the 
management cost. 

Liability Act of 1871. — After the establishment of 
the German Empire in 1870 the problem of industrial 
accidents early engaged the attention of the govern- 
ment and the liability act of June 7, 1871, was passed. 
This act extended the railroad act of 1838 over the 
empire and in addition made the employer liable for 
accidents occurring in a mine, quarry, pit, or factory, 
if the injured workman or his survivors could prove 
negligence on the part of a vice-principal. 

Experience under the liability act was by no means 
satisfactory. The burden of proof was still on the 
employee and the law did not affect accidents due 
to the negligence of a fellow-employee nor those due 

2 Frankel and Dawson, "Workingmen's Insurance in Europe," 
p. 91. 



84 COMPENSATION INSURANCE 

to the inherent risk of the employment. Employers' 
liability insurance became common, making still more 
difficult the recovery of damages, and frequent law 
suits did much to embitter the relations of employers 
and employees. An official investigation disclosed 
conditions similar to 'those which have already been 
described as incident to the operation of employers' 
liability in the United States. 

Workmen's Compensation. — As a result of the 
growing dissatisfaction a movement for compulsory 
compensation gained rapid headway. The Socialists, 
under the leadership of Dr. Schaeffie, were first to 
urge the plan, which was supported by many of the 
economists and by most of the people. Bismarck, who 
had originally opposed the idea, finally adopted it with 
the purpose both of taking from the socialists some 
of their ammunition and of convincing the people of 
the beneficence of the State as it then existed. 

The first bill was introduced in the Reichstag on 
March 8, 1881, and provided for compulsory insur- 
ance against economic loss from industrial accidents 
in mines, factories, etc. Insurance was to be carried 
in a federal insurance corporation or in mutual asso- 
ciations of employers, its cost to be defrayed by con- 
tributions of employers and employees and by a sub- 
sidy from the state. The Reichstag was in sympathy 
with the compulsory features of the bill but proposed 
to substitute separate insurance carriers in each king- 
dom for the single imperial corporation and refused 
a state subsidy. These changes were not satisfactory 
to the government and the bill was withdrawn. 

Before another bill was introduced Emperor Wil- 



HISTORICAL DEVELOPMENT 85 

iiam sent his famous message to the Reichstag urg- 
ing a comprehensive scheme of social insurance. As 
the first and as one of the most liberal of official 
pronouncements on the subject it deserves quota- 
tion at considerable length. The Emperor said in 
part: 

We consider it Our Imperial duty to impress upon 
the Reichstag the necessity of furthering the welfare of 
the working people. We should review with increased 
satisfaction the manifold successes with which The Lord 
has blessed Our reign, could We carry with Us to the 
grave the consciousness of leaving Our country an addi- 
tional and lasting assurance of internal peace, and the 
conviction that We have rendered the needy that assist- 
ance to which they are justly entitled. Our efforts in 
this direction are certain of the approval of all the Fed- 
erate Governments, and We confidently rely on the sup- 
port of the Reichstag, without distinction of parties. 
In order to realize these views, a Bill for the Insurance 
of Workmen against Industrial Accidents will first of all 
be laid before you ; after which a supplementary meas- 
ure will be submitted, providing for a general organiza- 
tion of industrial Sick Relief Insurance. Likewise, those 
who are disabled in consequence of Old Age or Invalidity 
possess a well-founded claim to more ample relief on 
the part of the State than they have hitherto enjoyed. 
To devise the fittest -ways and means for making such 
provision, however difficult, is one of the highest obliga- 
tions of every community, based on the moral principles 
of Christianity. A more intimate acquaintance with the 
actual capabilities of the people, and a mode of turning 
these to account in corporate associations, under the 

patronage and with the aid of the State, will, We trust, 

7 



86 COMPENSATION INSURANCE 

develop a scheme to solve which the State alone would 
prove unequal. 

Following this message of November 17, 1881, a 
new bill was brought forward by the government on 
May 8, 1882, which made provision for sickness as 
well as for accidents. The sickness insurance was to 
be paid for by the workmen with assistance from em- 
ployers while the burden of cost of insurance against 
accidents was to be borne by the employers with a sub- 
sidy from the state. The first thirteen weeks of dis- 
ability from accidents was to be compensated from the 
sickness insurance funds. Mutual associations of em- 
ployers organized by trades were to administer the 
accident compensation and manage the accident funds. 
So much time was occupied in considering the propos- 
als for sickness insurance that those for accident in- 
surance were not reached during this session. The 
sickness insurance bill became law on June 15, 1883, 
going into effect December 1, 1884, and thus provid- 
ing for the first thirteen weeks of disability from ac- 
cidents. 

A third bill providing workmen's compensation was 
introduced on March 6, 1884, which, on account of 
the general opposition of all parties in the Reichstag, 
made no provision for a state subsidy. Its other main 
features were the same as those of the second bill and 
it was passed on July 6, 1884, taking effect on Octo- 
ber 1, 1885. The general principles embodied in this 
law are still the foundation of workmen's compen- 
sation in Germany and it may be regarded as the par- 
ent of all such legislation in other countries. 



HISTORICAL DEVELOPMENT 87 

Many important industries were excluded from the 
operation of the first act but subsequent legislation 
has extended the scope of compensation so that now 
practically every industry is covered. 3 All provisions 
for compensation have been brought together in a sin- 
gle code by the Imperial Insurance Ordinance of 191 1. 

Provisions of the Present Law. — In case of total 
inability to work resulting directly or indirectly from 
his occupation the injured workman receives payments 
from the date of the injury equal to sixty-six and two- 
thirds per cent of his former earnings, and a propor- 
tionate amount if the disability is partial. 4 Compen- 
sation will not be paid if the injury was intentionally 
self-inflicted and may be refused altogether or par- 
tially if caused by the employee's criminal act. 

Varying pensions, subject to a maximum of sixty 
per cent of wages, are paid to dependents; until death 
or remarriage in the case of a widow or widower; 
and to the age of fifteen in the case of children. Pro- 
vision is likewise made for dependent parents, grand- 
parents, and grandchildren. 

These payments are made from the sickness insur- 
ance funds to which the workmen contribute two- 
thirds of the cost, for the first thirteen weeks, but 
after that time all payments are made by mutual trade 
associations maintained wholly by employers. The 
associations administer the law subject to appeal to 
the higher insurance officials of the empire. 

3 For a list of industries for which compensation is provided see 
Dawson, "Social Insurance in Germany 1883-1911." Pp. 103-4. 

4 Payments for total disability may be increased to one hundred 
per cent of earnings if a nurse is necessary. 



88 COMPENSATION INSURANCE 

GREAT BRITAIN 

Employers' Liability. — In Great Britain ideas of 
individualism and freedom of contract have delayed 
the enactment of statutes dealing with employers' lia- 
bility and workmen's compensation and have restricted 
the scope of such laws as have been enacted. Recov- 
ery of indemnity for injuries suffered in industry was, 
to 1880, governed by the common law of negligence, 
which went to such lengths in the protection of the 
employer that it was practically impossible for a work- 
man to secure damages. The employer's defenses were 
given greater weight even than in the United States 
and it became possible for an employer to escape all 
liability if his business was conducted by a hired man- 
ager. 

The Employers' Liability Act of 1880 was the first 
legislative protest against the sweeping favoritism of 
the common law. It placed the employee in the posi- 
tion of a stranger when certain kinds of negligence 
could be proved, modifying considerably the doctrines 
of common employment and of assumption of risk, 
but leaving untouched the doctrine of contributory 
negligence, with special provisions for railway em- 
ployees. The amount of damages recoverable was, 
however, limited to three years' wages of a person 
in a similar grade and place of employment, and con- 
tracting out was still permitted. 

This statute, though a step forward in the theory 
of the relation of employer and employee, was produc- 
tive of little good. The practice of requiring work- 
men to sign a contract relieving the employer of lia- 



HISTORICAL DEVELOPMENT 89 

bility became general and such actions as were brought 
were usually unsuccessful. 

That act . . . cannot be said to have been successful. 
The proof of negligence has been found extremely diffi- 
cult, and in a vast proportion of the cases of accident no 
negligence of the nature required by the act in fact ex- 
isted, or at all events could be proved ; and even if there 
were prima facie evidence of negligence, the risks of 
litigation were most serious both for employer and em- 
ployed. . . . Regarded, therefore, as a means of obtain- 
ing compensation for injury by accident with a reason- 
able degree of certainty, the Employers' Liability Act of 
1880 must be considered to have been a failure. 5 

Realizing the inadequate nature of the act of 1880, 
Mr. Asquith introduced a bill in Parliament in 1893 
to modify still further the law of employers' liability. 
The bill provided for the abolition of the fellow-serv- 
ant doctrine, for the repeal of any limitation on the 
amount of damages, and for the prohibition of con- 
tracting out. It left operative the doctrines of con- 
tributory negligence and of assumption of risk (ex- 
cept as modified in 1880). The bill was passed by the 
Commons but the House of Lords insisted on an 
amendment permitting contracting out under certain 
conditions. 6 This amendment the Commons refused 

5 Report of the Departmental Committee on Workmen's Com- 
pensation, 1904, p. j 1. 

8 The scheme of compensation to be substituted by contract was 
to be approved by the Board of Trade and to provide for the 
compensation of all accidents, the employer contributing at least 
one-fourth of the cost. 



90 COMPENSATION INSURANCE 

to accept and the bill failed to pass, but its par- 
tial success is significant of the general trend of 
opinion. 

Workmen's Compensation, the Law of 1897. — 
Finally, in 1897, the Conservatives introduced a bill 
which became the Workmen's Compensation Act of 
1897 an d which was the first law of the sort in an 
English-speaking country. Mr. Asquith, of the oppo- 
sition, admitted the justice of the principle of com- 
pensation as opposed to the further modification of 
employers' liability which his earlier bill had proposed. 
It is interesting to contrast the statement made in sup- 
port of this bill that "sound economic doctrine re- 
quires that the employer shall take all the ordinary 
and extraordinary risks involved in the carrying on of 
his industry" with the statement sixty years earlier in 
the case of Priestly vs. Fowler that "principles of jus- 
tice and good sense require that a workman should 
take on himself all the ordinary risks of his employ- 
ment." 

The law was limited in its application to employ- 
ment in, or about, a railway, factory, mine, quarry, en- 
gineering work, or building work exceeding thirty feet 
in height. The employer was required to pay compen- 
sation for all accidents except those due to the "seri- 
ous and willful misconduct" of the employee and those 
which did not cause over two weeks' disability. The 
employee could recover under the law of negligence 
only if he could prove personal and willful neglect on 
the part of the employer. 

Benefits for the injured and their dependents were 
provided as follows : 



HISTORICAL DEVELOPMENT 91 

Compensation for death : 

To those totally dependent, three years' wages, 
to be not less than £150 nor more than £300. 

To those partially dependent, a reasonable pay- 
ment according to the degree of their depend- 
ency, not to exceed three years' wages nor £300. 

Reasonable medical and burial expenses, not 
to exceed £10, if there are no dependents. 

Compensation for disability: 

Fifty per cent of wages after the second week, 
not exceeding £r, for total disability with a re- 
duced amount for partial disability. 

It was required that payment of death benefits be 
made in lump sums which might be invested by an ar- 
bitrator to prevent squandering; and that incapacity 
benefits be paid weekly with privilege of commuta- 
tion, subject to a similar investment provision, after 
six months. 

Disputes arising regarding the payment of com- 
pensation must be settled by a committee representa- 
tive of the parties in interest, by an arbitrator selected 
by the two parties, or, if no agreement could be 
reached on one of the first two methods, by the judge 
of the county court who should act as an arbitrator or 
might appoint someone to act in his place. Appeal could 
be made from a decision only on questions of law. 

Contracting out was permitted by the new law pro- 
vided the workman was not a pecuniary loser, and 



92 COMPENSATION INSURANCE 

provided the contract for other compensation was 
not a condition of hire. The Registrar of Friendly 
Societies was authorized to determine the adequacy of 
any proposed substitute for the compensation provided 
by law. 

Later Acts. — The Act of 1897 was regarded as 
something of an experiment subject to extension and 
correction in the future. In 1900 its provisions were 
extended to cover agricultural employment and in 
1903 a special committee was appointed to recom- 
mend amendments and to determine whether its op- 
eration should be further extended. This committee 
reported in 1904, and in 1906 an amending statute was 
passed which extended the principle to every employ- 
ment, covering all workers earning £250 or less, with 
the exception of casual employees and out-workers. 7 
The act of 1906 is still in force and is, in essentials, 
the same as the act of 1897. Some important changes 
were made, however: certain trade diseases are now 
covered; the waiting period was reduced to one week 
and compensation is paid from the date of the acci- 
dent if disability lasts over two weeks; the defense 
of "serious and willful misconduct" was removed 
where the accident resulted in death or in serious and 
permanent disablement; the privilege of compensation 
was extended to a greater number of dependent rela- 
tives ; maximum benefits for minors were raised to 
full wages (later becoming one-half of the wages they 
would have earned as their wages increased) ; the re- 
striction of compensation to accidents occurring "on, 

7 The wage limitation does not apply to employees engaged 
wholly in manual labor. 



HISTORICAL DEVELOPMENT 93 

in, or about" the employer's premises was removed; 
and more careful provision was made for the commu- 
tation of periodical payments. 



Such have been developments in foreign coun- 
tries and it is safe to say that nowhere is there any 
probability of a reaction against the compensation 
principle. Defects there are, but they are not funda- 
mental. Many improvements must be made in method 
and in details and there will always be unsatisfactory 
features connected with the operation of any law, 
but workmen's compensation is thoroughly established 
and has become, especially in those countries where it 
was early adopted, a recognized essential in the gov- 
ernmental and industrial fabric. 

REFERENCES 

Frankel and Dawson. "Workingmen's Insurance in 
Europe," Charities Publication Committee, New 
York*(igio). Chaps. I-VI, XVII. 

Dawson, W. H. "Social Insurance in Germany, 1883- 
191 1." Unwin, London (1912). Chaps. I and IV. 

Workmen's Insurance and Compensation Systems in Eu- 
rope, 24th Annual Report of the Commissioner of 
Labor. Washington (1909). 

Workmen's Compensation Laws of the United States 
and Foreign Countries (1916). Bulletin of the U. S. 
Bureau of Labor Statistics, No. 203. Washington 
(1914). 

Report of the Departmental Committee on Workmen's 
Compensation. London (1904). 



CHAPTER VIII 

HISTORICAL DEVELOPMENT OF WORKMEN'S COM- 
PENSATION IN THE UNITED STATES AND TERRI- 
TORIES 

A complete history of workmen's compensation in 
the United States and its territories would require a 
separate account of its development in each of the jur- 
isdictions where laws have been adopted and would 
involve a considerable amount of duplication as each 
state has passed through much the same legislative 
stages before abandoning the old liability doctrines. 
As the modification of the law of negligence has al- 
ready been considered, the present chapter will be de- 
voted to the progress of compensation legislation and 
will serve as an introduction to the analysis of exist- 
ing laws contained in succeeding chapters. 

The first evidence of interest in compensation in 
this country was the publication, in 1893, by the United 
States Bureau of Labor of a special report by Dr. John 
Graham Brooks on Compulsory Insurance in Ger- 
many. Since that time the Bureau has published nu- 
merous other studies dealing with this topic and in 1912 
the Bureau of Labor Statistics inaugurated a Work- 
men's Insurance and Compensation Series of which ten 
numbers have already appeared. Many reports, valua- 

94 



HISTORICAL DEVELOPMENT 95 

ble and otherwise, of state investigating commissions, 
the proceedings of various conferences, and the publi- 
cations of several societies interested in the study of 
compensation are also available. Since the enactment 
of compensation laws the literature has been greatly 
increased by the reports of administrative bodies, some 
of which are exceedingly valuable contributions. Sev- 
eral texts have been issued dealing with the legal side 
of the subject, as well as a few general treatises in 
book form. There is now, in fact, a plethora of pub- 
lications where a few years ago there was practically 
nothing. There is much duplication and much that 
is worthless in all this, but as a measure of interest in 
the movement and of spread of the idea, the accumu- 
lation of articles, pamphlets, and books is signifi- 
cant. 

Compensation Schemes of Private Corporations. — 
Long before compensation laws were considered in the 
United States private corporations, particularly rail- 
roads, were making some provision for employees' re- 
lief associations. These schemes varied in scope and 
effectiveness as well as in methods. In many the cor- 
porations gave substantial aid by paying the expenses 
of administration and by granting subsidies. Some 
were no more than arrangements for securing hospital 
treatment, others granted a regular scale of compen- 
sation for disability or death. 

The greatest criticisms of these plans were that they 
were in all cases inadequate, making provision only 
for immediate needs, and that they were too often 
much more advantageous to the corporation than to 
the workman. They often furnished a safe repository 



96 COMPENSATION INSURANCE 

for funds and the help they gave was much better 
than anything which had before existed but the semi- 
compulsory nature of the membership requirements, 
the release from liability usually required as a condi- 
tion of receiving benefits, and the payments required 
from workmen contrast them most unfavorably with 
modern compensation. They were a step forward and 
indicated a broadened attitude on the part of company 
officials who began to see the "practical" and humani- 
tarian gains from a policy of accident prevention and 
compensation. 

Workmen's Collective Insurance. — Another plan 
with some resemblance to workmen's compensation 
was Workmen's Collective Insurance, written under 
a group accident policy by the casualty companies. 
Premiums for this type of insurance and benefits 
granted were expressed as a percentage of wages, thus 
enabling the employer to secure for his employees the 
essential features of a modern compensation scheme.. 
Premiums might be paid by the employer alone, by the 
workman alone, or by both. For a small increase 
in premium the policy might be extended to cover the 
entire twenty-four hours, the ordinary type covering 
only working hours. 

The total volume of this sort of insuiance has been 
small — it has not been featured by the insurance com- 
panies and many employers are unwilling to pay the 
apparently high premiums. It has no place, of course, 
in compensation states and is rapidly falling into dis- 
use. 

The Maryland Act of 1902. — The first legislation 
embodying in any degree the compensation principle 



HISTORICAL DEVELOPMENT 97 

was the act providing for the cooperative accident in- 
surance fund of Maryland, passed in 1902. The stat- 
ute applied only to mining, quarrying, steam and street 
railway service, and to municipal operations in con- 
nection with sewers, excavations, or physical struc- 
tures. The liability of the employer was extended to 
embrace the negligence of a fellow-servant, and only 
one-half damages were to be forfeited if contributory 
negligence could be proved. The employer, however, 
was exempted from all liability for accidents on the 
payment of a stated annual premium, varying with 
the industry and payable in monthly installments, into 
an insurance fund to be administered by the insurance 
commissioner, who was to receive one per cent of the 
receipts in payment for the extra work involved. 1 The 
employer was permitted, after giving notice to his 
employees, to deduct one-half of these premiums from 
their wages. Exemption might also be secured by 
showing to the satisfaction of the insurance commis- 
sioner that there was already in operation a plan more 
advantageous to the employees than that proposed by 
the act. 

The benefits granted by the statute were mea- 
ger — $1,000 was to be paid from the fund to the heirs 
or personal representatives of any employee fatally 
injured in the course of his employment. Death must 
occur within one year and the injury must be due to 
the employment. There was no provision for non-fa- 

1 The annual premiums were as follows : for each employee of a 
steam railroad, $3.00; of a mine or quarry, $1.80; of a street rail- 
way, $0.60. The insurance commissioner was authorized to set 
the premiums payable by municipalities. 



98 COMPENSATION INSURANCE 

tal injuries. The insurance commissioner was given 
plenary power of administration with no right of ap- 
peal to the courts. 

The law remained in force a little less than two 
years, being declared unconstitutional by the courts 
on the grounds that it vested judicial powers in the 
insurance commissioner, deprived workmen of a right 
hitherto enforceable in the courts, and denied the 
right of trial by jury. Its operations were insignifi- 
cant, only nine companies contributing to the fund, 
of which the receipts were $5,313.90. Of this, $5,000 
was paid out in death claims and $300 for ex- 
penses. 

The Massachusetts Act of 1908. — No further laws 
were passed until 1908, although a Massachusetts com- 
mittee had recommended a law modeled after the 
English act in 1903, and an Illinois commission had 
suggested a voluntary act in 1905. The Massachu- 
setts act of 1908 provided no definite plan of compen- 
sation but authorized the establishment of private 
plans in the following terms : 

Any employer of labor may submit to the State Board 
of Conciliation and Arbitration a plan of compensation 
for employees in his employ, providing for payments to 
said employees in the event of injury in the course of 
their employment, based upon a certain percentage of 
the average earnings of such employees, and without 
reference to legal liability under the common law or the 
employers' liability act. After examination of such plan 
of compensation, and a public hearing thereon after pub- 
lic notice thereof, the board of conciliation and arbitra- 
tion may, if it considers the same fair and just to the 



HISTORICAL DEVELOPMENT 99 

employees, give its approval thereof by certificate to be 
attached to such plan. 2 

After obtaining official approval the employer was 
permitted to enter into a contract with his employee 
by which the compensation scheme was to be accepted 
in lieu of all legal liability for accidental injuries. The 
contract could not be made a condition of employment 
nor was it to be binding for more than one year from 
its date. The law is purely of historical interest, as it 
was a dead letter from the start. 

The Federal Act of 1908. — The Federal act of 
1908, though notoriously inadequate, was the first real 
compensation law to be enacted in the United States 3 
and continued in force until it was superseded by the 
act of 1916. 

Later Acts. — On March 4, 1909, Montana adopted 
a compulsory compensation law to take effect on Oc- 
tober 1, 19 10, and applying only to the coal mining 
industry. A cooperative insurance fund was estab- 
lished to be supported by contributions from employers 
and workmen. The law was declared unconstitu- 
tional since the workman could still sue under the 
common law, a double liability being thereby imposed 
on the employer. A somewhat similar statute was 
adopted in Maryland, in 19 10, applying to miners in 
two counties, but this was repealed in 191 4. The only 

2 Laws of Mass., 1908, Chap. 489, § 1. 

3 The first compensation law to take effect within the jurisdic- 
tion of the United States was that enacted by the U. S. Philippine 
Commission in 1906 which provided for the continuation of wages 
or salary for not more than 90 days of disability resulting from 
an injury incurred while on duty. 



100 COMPENSATION INSURANCE 

other laws not now in effect are the compulsory New 
York law of 19 10, the elective Kentucky law of 1914, 
both declared unconstitutional, and the impractical 
Maryland act of 19 12 which was superseded by the 
act of 1914. 

Beginning with the year 1909, interest in com- 
pensation has grown rapidly. Many investigating 
commissions have been appointed and the greater 
number of our present laws are a result of their la- 
bors combined with the recommendations of various 
private organizations. Barring the elective New York 
statute of 1910, 4 which has been a dead letter, the state 
compensation law which has been longest in force, is 
that of New Jersey, which went into effect on July 
4, 191 1. Two other laws, those of Kansas and Wash- 
ington, were passed at an earlier date (March 14, 
191 1 ) than the New Jersey statute, but they did not 
become effective until the following January first and 
October first, respectively. Other laws passed in 191 1 
were those of Massachusetts, New Hampshire, Ohio 
and Wisconsin. 

Since 191 1 the compensation idea has spread rapidly 
until, at the present writing, the United States, thirty- 
two states, and two territories have adopted this prin- 
ciple and several others are considering it. In every 
state prominent industrially there is a compensation 
law in force. The following table indicates the growth 
of such legislation in the United States and territories. 

4 In the remainder of this volume the elective New York law 
will not be considered, as it has no effect. Any reference to the 
New York act will apply to the compulsory statute enacted in. 
I9I3- 



HISTORICAL DEVELOPMENT 101 

Years of Enactment and Taking Effect of Workmen's Compensation Laws 
Now in Force in the United States and Territories 5 

Year 1911 1912 1913 1914 191S 1916 

Laws enacted ' 7 3 II 2 10 2 

Laws taking effect 3 7 6 7 8 4 

Total number of laws in 

force 3 10 16 23 31 34 

States and Territories in 

which enacted *Kan. Ariz. *Cal. La. Colo. Ky. 

*Mass. Mich. *Conn. Md. Ind. U. S. 

*N. H. R. I. 111. *Me. 

N. J. la. Mont. 

*Ohio Minn. Okla. 

Wash. *Neb. *Penna. 

Wise. Nev. Vt. 

*N. Y. Wyo. 

*Ore. Alaska 

Tex. ■ Hawaii 
W. Va. 

Along with this development in legislation has gone 
a corresponding development in public opinion. A 
few years ago the proponents of compensation were 
limited to a few economists and government officials, 
the great majority of the people knowing nothing of 
the movement, and most manufacturers and labor or- 
ganizations actively opposing it. Now it is difficult 
to find a person with any knowledge of the subject 
who will offer objection to the general principle. Criti- 
cisms are directed at details and methods, but all 
classes are convinced that compensation is inevitable 
and desirable. 

The foregoing presents in brief the development of 
the institution of workmen's compensation which has 
now become a definitely accepted part of our social 
structure and which has paved the way for the discus^ 
sion and development of social insurance along other 
lines. In the three following chapters the statutes now 
in force are analyzed with a view to explaining the es- 
sential features and variations of compensation laws 

5 An asterisk indicates that the law took effect in the following 
year. 

8 



102 COMPENSATION INSURANCE 

as adopted in this country, and to suggesting certain 
improvements. 6 

REFERENCES 

Rubinow, I. M. "Social Insurance," Holt, New York 

(1913). Chaps. X and XL 
Workmen's Insurance and Benefit Funds in the United 

States. 23d Annual Report of the Commissioner of 

Labor, Washington (1909). Pp. 271-662, 749-793. 
Workmen's Compensation Lazvs of the United States 

and Foreign Countries, 1916. Bulletin of the U. S. 

Bureau of Labor Statistics, No. 203, Washington 

(1916). 

6 Since this chapter went to the printer the enactment of com- 
pensation laws by five states has been reported, as follows : 
Idaho, Delaware, New Mexico, South Dakota, and Utah. 



CHAPTER IX 

WORKMEN'S COMPENSATION LEGISLATION IN THE 
UNITED STATES AND TERRITORIES 

Among the thirty-three workmen's compensation 
acts in force in the United States there is wide diver- 
sity of expression of the compensation idea" These 
laws differ in extent of application, in amount of com- 
pensation, in method of administration, in insurance 
requirements, and in various other elements involved 
in the application of the principle of compensation. 
They are all based, however, on the unifying purpose 
of compensating the workman for economic loss from 
industrial accidents without requiring proof of fault 
on the part of the employer or of freedom from fault 
on the part of the employee. Their diversity is due to 
differences in opinion on the proper methods of secur- 
ing justice to the workman, to varying degrees of skill 
and diligence in drafting laws, and to considerations 
of expediency in presenting to legislatures bills 
which do not arouse effective opposition nor encoun- 
ter constitutional objections. The demand for com- 
pensation legislation has often been answered by the 
passage of acts which have been drawn up without ade- 
quate investigation of the subject and by incompetent 
or partisan officials. So many considerations foreign 
to justice and scientific accuracy enter into the passage 
of legislative measures that we can not be said to 

103 



104 COMPENSATION INSURANCE 

have an ideal compensation statute on the books o'f any 
of our states, although many of them are praise- 
worthy as first steps in this form of legislation. 

The defects of our compensation legislation do not 
result alone from legislative expediency and lack of 
careful investigation. We are as yet young in this 
field and experience will point the way to many 
changes, the necessity of which could not be foreseen. 
Already many features which experience has proved 
necessary or diminished opposition made possible have 
been incorporated by amendment of existing statutes. 
The tendency of amendments is toward liberalization 
and administrative reform, and toward the correction 
of those defects which have become evident in practical 
operation. 1 

In the following pages the provisions of existing 
laws are analyzed with a view to showing the prevail- 
ing practice in the essential features of a compensa- 
tion statute. It is further attempted to indicate the 
relative desirability of various provisions, to explain 
the motives for their enactment, and to suggest possi- 
bilities of improvement. 

Election of Compensation. — Twenty-five states and 
one territory 2 have adopted so-called elective laws 
which provide for optional compensation. Neither 
employers nor employees are forced to accept the pro- 

1 One of the problems of amendment consists in revising or 
eliminating provisions inserted in slavish imitation of unsuitable 
models. 

2 Ariz., Colo., Conn., 111., Ind., la., Kan., Ky., La., Me., Mass., 
Mich., Minn., Mont, Neb., Nev., N. H., N. J., Ore., Penna., R. L, 
Tex., Vt., W. Va., Wis., Alaska. 



COMPENSATION LEGISLATION 105 

visions of the act and either may elect to remain under 
the system of employer's liability. This privilege of 
election is of little practical significance, however, for 
the alternative to acceptance is highly disadvantageous 
to both classes. The employer who refuses to elect 
the act is, in practically all cases, made liable for dam- 
ages under the common law with the defenses of as- 
sumption of risk, common employment, and contribu- 
tory negligence removed. If the employee rejects the 
act the employer is permitted to make use of these de- 
fenses. 3 Further, in practically every act, election is 
automatic — employers and workmen are presumed to 
have elected compensation unless they serve notice to 
the contrary. These provisions achieve the purpose 
for which they are inserted, that of bringing the ma- 
jority of the laboring population under the compensa- 
tion act. Those who do not take the trouble to con- 
sider the question are reached by the automatic appli- 
cation of the law while those who investigate usually 
prefer to accept rather than take the risks of a suit 
at law under the new code of liability. Rejection is 
confined to a small group of reactionaries and non- 
hazardous trades. 4 

There is little need of advising the acceptance of a 

3 In the Pennsylvania Act the defenses are removed even 
though the employee rejects the law. The defense of contribu- 
tory negligence is not abrogated if the accident is caused by the 
employee's intoxication, or by "reckless indifference to danger." 

4 In Texas and West .Virginia the compensation act is elective 
as to employers and compulsory on employees if the employer 
has elected it. In Arizona the act is compulsory on employers 
but the employee may elect to sue under the common law after 
the injury has occurred. 



106 COMPENSATION INSURANCE 

properly drawn compensation act at this time and it 
should be pointed out that election of compensation on 
the part of both employers and employees is proceeding 
to a much greater extent than formerly from a new 
concept of social values and from the promptings of 
"enlightened self-interest." Where formerly it was 
necessary to make a law elective for conciliatory rea- 
sons, its necessity now rests on grounds of constitu- 
tional law. It is to be hoped that even this necessity 
will disappear. 

In seven states and one territory 5 workmen's com- 
pensation has been made compulsory. Four of these 
extend compulsion to most employments subject to the 
act but provide that in certain employments the act 
shall be elective ; and in Ohio, while compensation is 
compulsory, as a penalty on the employer for failing 
to comply with certain provisions, the injured em- 
ployee is entitled to bring suit at common law with 
the three defenses removed or have compensation 
awarded under the terms of the act, as he may choose. 
Nearly one-half of the elective acts are compulsory 
as to public bodies. 

There is little to be said in favor of an elective law 
on grounds of principle. There is no good reason 
for leaving to individual discretion the acceptance of 
a measure of social justice so universally approved 
as workmen's compensation — compulsion should be 
applied wherever possible. It is true that an elective 

B Cal., Md., N. Y., O., Okla., Wash., Wyo., Hawaii. The fed- 
eral act is also compulsory. Map No. i, p. 107, shows the states 
which have adopted compensation laws and indicates the nature 
of each, whether elective or compulsory. 






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107 



108 COMPENSATION INSURANCE 

law is better than none at all and that in some jurisdic- 
tions an elective clause is necessary if the law is not 
to be declared unconstitutional, but the necessity of in- 
serting a clause which is no more than a trick to evade 
the constitutional question is subversive of good legis- 
lative practice and furnishes an argument in favor of 
constitutional amendment. 

Employments Covered. — No compensation law in 
the United States covers all employments, except the 
federal act, which covers all civil employees of the 
United States government. Express exception is made 
of certain classes, and enumeration of those to which 
the law applies is included in its provisions. Some 
statutes cover all employments with the exception of 
casual labor or labor not in the "usual course of busi- 
ness" of the employer. About one-half of the acts 
cover all employments except domestic service, agri- 
cultural labor, and casual labor. Eleven states restrict 
the operation of the law to employers having a certain 
number of workmen 6 — others specifically except out- 
workers, while several restrict the operation of the act 
to employees who receive earnings below a specified 
maximum. Employees of railroads engaged in inter- 
state commerce are usually excluded from the opera- 
tion of the act, and in some cases employees in im- 
portant industries are excluded, evidently through the 
pressure of important business interests. 7 Enumera- 
tions of specific employments or of classes of employ- 

6 In eight of these the number is set at five; in one, at ten; in 
one, at four, and in one, at two. 

7 E. g., the exception of cotton ginning in Texas and the excep- 
tion of distilleries in the first Kentucky law. 



COMPENSATION LEGISLATION 109 

ments to which the law shall apply are contained in 
the statutes of eleven states, varying from the limited 
classification of New Hampshire to the extensive and 
detailed list of New York. In all cases the enumera- 
tions are based on the idea that the compensation 
law should cover only "hazardous" or "extra-hazard- 
ous" employments. 

A perfect scheme of compensation should cover all 
employments without exception. There are two suf- 
ficient reasons for making exceptions; that with the 
prevailing state of public or legislative opinion, a bill 
covering all employments would fail of enactment, 
and that the social cost of including a given employ- 
ment is not justified by the social gain to be derived. 
The operation of the first reason depends on local 
conditions and is justified only to secure the establish- 
ment of the principle. The second reason is applicable 
to a very limited class — to quote the Standards for 
Workmen's Compensation Laws: 8 

The only exception which should be made is of casual 
employees in the service of employers who have only such 
employees and who, therefore, cannot fairly be required 
to carry compensation insurance policies. Such policies, 
on payment of a small additional premium, are now 
drawn so as to embrace casual as well as regular em- 
ployees. No serious burden is, therefore, entailed on 
employers, even of" domestic servants, in making them 
liable to pay compensation even to casual employees. 

The usual exceptions are plainly the result of at- 
tempts to relieve small employers of liability and to 

8 Published by the American Association for Labor Legislation. 



110 COMPENSATION INSURANCE 

exclude relatively non-hazardous occupations. The in- 
dividual who constitutes his employer's entire labor 
force has quite as valid a claim to compensation for 
injury as has a workman who is only one unit in a 
large organization. Liability for such compensation 
is not a serious matter for the small employer since he 
may take out an insurance policy for a small premium. 
The attempt is frequently made to justify the exclu- 
sion of agricultural laborers and domestic servants 
on the ground that these occupations are non-hazard- 
ous. Such statistics as are available discredit this ar- 
gument but even were it true it should have little 
weight since insurance companies grant a compara- 
tively low rate on non-hazardous employments. 

While it is true that practical reasons justify the 
exclusion of casual laborers in the service of employ- 
ers who have no other employees, it would seem that 
some provision should be made for them, possibly from 
the public treasury. 

Injuries Covered. — But two states 9 have laws which 
apply to all injuries occurring "in the course of the 
employment." One state 10 includes all accidental in- 
juries arising "out of and in the course of the employ- 
ment." In all others exceptions are made which re- 
flect the old "personal fault" concept and which aim 
to regulate the conduct of an employee by denying 
compensation to him and to his dependents under cer- 
tain conditions. The most frequent exceptions are of 
injuries arising from willful misconduct, serious and 

9 Texas and Montana. The latter has certain special restric- 
tions regarding hernia, and specifically excepts disease. 

10 Illinois. 



COMPENSATION LEGISLATION 111 

willful misconduct, intoxication, and willful self-inflic- 
tion. In several states death must occur within a 
certain length of time after injury in order to be made 
the basis of compensation to dependents, the period 
varying from six months to two years. 

The exceptions noted above have as their motive 
relief of the employer from liability for injuries which 
are without question due to the action of the em- 
ployee as an individual. The terms "serious and will- 
ful misconduct" and "willful misconduct" were bor- 
rowed from the English act and have little to com- 
mend them. They are exceedingly difficult of inter- 
pretation and merely preserve certain objectionable 
features of the old liability system. "Intoxication," 
likewise, cannot be easily defined and it is probable 
that, as a matter of policy, the employer should be 
made liable for injuries arising from this cause in or- 
der to impress him with the advisability of making 
sobriety a condition of employment. "Willful self-in- 
fliction" may be justified as a cause for denial of com- 
pensation, although actual cases of such action would 
probably be very unusual, even in the event that pay- 
ment could be secured. It would seem that even here 
compensation should not be denied to dependents since 
the economic need is equally pressing and since there 
is no justification for imposing a penalty on them for 
another's misconduct. Compensation for all accidents 
arising "in the course of employment" has the cardinal 
merit of simplicity, and does away almost entirely with 
the necessity of official interpretation. 

Massachusetts and California include occupational 
diseases within the scope of their compensation laws. 



112 COMPENSATION INSURANCE 

A number of laws specifically except this form of in- 
jury, while the majority make no mention of occupa- 
tional diseases as such. It has usually been held that 
the terms "accidental injury" and "injury by acci- 
dent" which are included in most laws do not embrace 
occupational diseases. It is obvious that in practically 
every state there was no intention of covering such 
injuries, but disease which is the natural and direct 
result of a compensable injury is included in all cases. 

Workmen should be compensated for losses from 
disease arising out of the conditions under which in- 
dustry is conducted. While industrial diseases are 
less spectacular than accidents and are less likely to 
attack without warning, responsibility for their oc- 
currence is attributable to the industry and it should 
bear the cost of furnishing adequate compensation. 
The arguments advanced in favor of accident com- 
pensation apply even more forcibly to industrial dis- 
eases since the latter are less susceptible of control by 
the individual workman. 

The Beneficiaries of Compensation. — In cases of 
disability compensation is paid to the disabled work- 
man, while in case of death payment is made to sur- 
viving dependents if there are any; if not, some provi- 
sion is usually made for funeral expenses. In only 
one state, Oklahoma, is there no provision for depend- 
ents in case of death. The following quotation from the 
California act is typical of definitions of dependents: 

Sec. 19. (a) The following shall be conclusively pre- 
sumed to be wholly dependent for support upon a de- 
ceased employee:. 



COMPENSATION LEGISLATION 113 

(i) A wife upon a husband with whom she was 
living at the time of his death, or for whose 
support such husband was legally liable at the 
time of his death. 

(2) A husband upon a wife upon whose earnings 
he is partially or wholly dependent at the time 
of her death. 

(3) A child or children under the age of eighteen 
years (or over said ages, but physically or men- 
tally incapacitated from earning) upon the par- 
ent with whom he or they are living at the time 
of the death of such parent or for whose main- 
tenance such parent was legally liable at the 
time of his death, there being no surviving de- 
pendent parent. 

(b) In all other cases, questions of entire or partial 
dependency and questions as to who constitute depend- 
ents and the extent of their dependency shall be deter- 
mined in accordance with the fact, as the fact may be at 
the time of the death of the employee. 

(c) No person shall be considered a dependent of any 
deceased employee unless a member of the family of such 
employee or unless such person bear to such employee 
the relation of husband or wife, child, adopted child or 
stepchild, father or mother, father-in-law or mother-in- 
law, grandfather or grandmother, brother or sister, uncle 
or aunt, brother-in-law or sister-in-law, nephew or niece. 

Illegitimate and posthumous children are often includ- 
ed by express statement. 

Non-resident alien dependents are variously treat- 
ed; many acts make no mention of them, some ex- 
clude them from the list of beneficiaries, while others 
expressly include them, but often at a reduced rate. 



114 COMPENSATION INSURANCE 

In some states payment will be made only to certain 
of the decedent's immediate relatives. New Hamp- 
shire even goes so far as to deny payment to depend- 
ents not resident in the state at the time of the work- 
man's death. As a matter of justice aliens should re- 
ceive payments on the same basis as other dependents. 

Waiting Period. — In the majority of states pay- 
ment of compensation begins only after a two weeks 
duration of disability. Oregon alone requires pay- 
ment unqualifiedly from date of injury, while Illinois 
and Minnesota provide for such payment in the case 
of permanent injuries. 11 In six states .payment dates 
back to the time of the injury if disability continues 
for a certain length of time. 12 . This waiting period re- 
fers only to the actual payment of benefits — medical 
and surgical aid must be supplied immediately on 
the occurrence of an injury. Its purpose is to exclude 
unimportant injuries and to prevent malingery. In a 
multitude of cases where disability lasts for a few 
hours or days the cost of administration of compensa- 
tion benefits would be disproportionately large" in com- 
parison with benefits and would result in a net social 
loss. This fact makes necessary the exclusion of a 
large class of accidents which make a considerable 
showing in the aggregate but which are of little im- 
portance in the individual case. 

One of the dangers of granting compensation arises 

11 Certain acts provide waiting periods of three, six, seven, or 
ten days and one sets the time at three weeks. In Washington 
no payment is made unless the time lost is equivalent to a loss 
of 5% of the monthly wages. 

12 Two to eight weeks. 



COMPENSATION LEGISLATION 115 

from the inducement given the workman to feign in- 
jury or to allege a longer period of incapacity from 
actual injury than is justified. The waiting period 
furnishes an opportunity for examination and for de- 
tection of this sort of malingery and should be of 
sufficient length to counteract any tendency in this di- 
rection. If it is too short it will tempt the workman 
to prolong his period of idleness in order to secure 
payment of benefits; if too long, an undue burden of 
loss will be imposed upon him. The provision that 
compensation shall date back to the injury if disabil- 
ity endures for a considerable length of time is un- 
doubtedly wise, but a waiting period of two weeks 
with compensation from date of injury if incapacity 
for work lasts over two weeks is too great a tempta- 
tion to malinger. Prolongation of disability for one 
or two days would entitle the workman to the full two 
weeks' compensation in many cases. The length of 
the waiting period should strike an equitable mean be- 
tween conflicting considerations and should depend to 
some extent on local conditions of industry and ad- 
ministration. In no case should it be over two weeks. 



CHAPTER X 

WORKMEN'S COMPENSATION LEGISLATION IN THE 
UNITED STATES AND TERRITORIES {Continued) 

THE SCHEDULE OF COMPENSATION 

Since workmen's compensation laws are designed 
to provide benefits for those suffering economic loss 
through injury, a most important section of a com- 
pensation act is that setting forth the amount of such 
benefits. To be just, they should be proportioned to 
the losses which they indemnify. The first problem 
is to find a suitable measure of the loss which will 
serve as a basis for the computation of payments. The 
most practicable measure of economic loss is the wages 
received by the injured workman at the time of the 
injury and this has been adopted by all except three 
states. Compensation payments are expressed in the 
form of a percentage of wages, usually between defi- 
nite limits. This percentage must not be set too low 
lest the benefits prove insufficient, nor should it be set 
too high lest they offer an incentive to malingery. 

Provision must likewise be made for medical and 
surgical aid and for the payment of benefits in peri- 
odical installments or lump sums as may be deemed 
wise. 

Classification of Industrial Accidents. — For pur- 

116 



COMPENSATION LEGISLATION 117 

poses of compensation industrial accidents are divided 
into two general classes, non-fatal and fatal. In non- 
fatal cases all payments are made to the injured person 
and the only question involved concerns their amount. 
Fatal cases raise questions both of amount and of dis- 
tribution. If a certain fixed percentage is to be paid 
to dependents, regardless of their number and rela- 
tionship, it must be determined how that amount is to 
be distributed among them, whether they are to share 
equally or according to relationship and degree of de- 
pendency. This may be accomplished by the insertion 
of provisions in the law or by authorizing the admin- 
istrative body to adjust such matters. If it is consid- 
ered best to award a definite percentage to each of the 
dependents, according to relationship or dependency, 
these percentages must find expression in the law. 
Further, it is necessary to provide for payments to 
non-resident aliens if it is desired to treat them dif- 
ferently from residents. 

While the complications in fatal cases arise from 
the nature of the beneficiaries, in non-fatal cases they 
are due to the varying nature of injuries, which are 
classified as total or partial disabilities. Total disabil- 
ity is that disability which renders it impossible for a 
workman to perform any work whatsoever, while par- 
tial disability exists when he is able to continue work 
but with a reduced earning capacity. Either total or 
partial disability may be permanent or temporary ; the 
former continuing for life, the latter for a shorter 
period. Another class usually inserted embraces spe- 
cific injuries, such as the loss of an eye, hand, foot, 
etc. 



118 COMPENSATION INSURANCE 

Each of these groups may in turn be divided into 
compensable and non-compensable cases; or, specifi- 
cally, those cases in which compensation is payable 
under the law and those cases in which it is not so 
payable. 

Total Disability Benefits. — For temporary total dis- 
ability a sum equal to fifty per cent of the wages is 
granted in twenty-one states and one territory, the 
usual basis being the average weekly wage. Other 
acts provide for larger percentages as follows : fifty- 
five per cent in Indiana, sixty per cent in Texas and 
Hawaii, sixty-five per cent in California, Wisconsin, 1 
and Kentucky, and sixty-six and two-thirds per cent 
in Massachusetts, New York, and Ohio and under the 
federal act. Three~stMes7"Oregon, Washington, and 
Wyoming require the payment of periodical amounts, 
fixed with reference to conjugal state and number of 
children; in the first two of which the payment for the 
first six months is computed by increasing the perma- 
nent total disability payments 2 by fifty per cent with 
a maximum limit of sixty per cent of wages. In 
Wyoming the following schedule is in force : an un- 
married workman receives fifteen dollars per month, 
a married workman living with his wife, twenty dol- 
lars, plus five dollars for each child under sixteen 
years of age, the total not to exceed thirty-five dollars. 
In four states 3 compensation for temporary total dis- 
ability continues as long as disability lasts, though in 
three the rate is reduced after a certain period has 

1 In Wisconsin 100% is allowed if a nurse is necessary. 

2 V. p. 119. 

3 Colorado, Nebraska, Oregon, and Washington. 



COMPENSATION LEGISLATION 119 

elapsed. In Colorado, as well as under the federal act, 
the payments are continued at the original rate for 
the full duration of disability. All other acts set. a 
definite maximum limit on the aggregate amount of 
compensation, on the period of time during which it 
is to be paid, 4 or on both. Limits are also provided 
for weekly or monthly payments in all but two states ; 
the usual minimum being five dollars, and the usual 
maximum ten dollars, per week. Full wages are paid 
in several states if the workman's earnings are below 
the required minimum. 

All acts which provide for percentage payments for 
temporary total disability require the same percent- 
ages to be paid for permanent total disability. In ten 
states benefits continue throughout life for disability 
of this kind but in two of these at a special rate, 5 while 
four change the rate after a certain period. 6 The re- 

4 Limits of amount vary from $1000 to $5000; and of time, from 
26 to 500 weeks. Where both limits are used that one becomes 
operative which is first reached. 

5 Oregon and Washington, where the following schedules are 
in force, payments being on a monthly basis : — 

Oregon Washington 

Unmarried $30.00 $20.00 

Having able-bodied husband 30.00 15.00 

Having wife or invalid husband 35-00 25.00 

Widow or widower. 30.00 20.00 

For the last three classes payments are increased by six dollars 
in Oregon and by five dollars in Washington' for each child under 
sixteen, such additional amount to be discontinued when the child 
reaches that age. Total payments are not to exceed fifty dollars 
in the former state nor thirty-five dollars in the latter. 

6 California changes the rate from 65 per cent to 40 per cent 
after 240 weeks; Illinois, from 50 per cent of wages to an 
annual pension of 8 per cent of total previous payments (mini- 



120 COMPENSATION INSURANCE 

maining four 7 pay the same percentage throughout 
life. 

Much the same limits to weekly and aggregate pay- 
ments are applied here as in temporary cases except 
that the aggregate limits are raised in some acts. Wy- 
oming and Alaska provide for lump sum payments 
varying from one thousand to three thousand dollars 
in the former, and from three thousand six hundred to 
six thousand in the latter. 

Partial Disability Benefits. — Benefits for temporary 
partial disability are generally computed by the appli- 
cation of the percentage used in cases of total disabil- 
ity to the loss in earning power attributable to a com- 
pensable injury. This method is used in fact or in 
principle wherever benefits for disability of this char- 
acter are granted. 8 

Permanent partial disability (other than certain 
specific injuries) entitles the workman in most states 
to the same benefits which he secures for temporary 
partial disability. There are several exceptions, how- 
ever; in California, West Virginia, and New York and 
under the federal act payments are continued for life, 
and the acts of New Jersey, Washington, and Wyo- 
ming, which do not provide for the latter form of dis- 
ability, make provision for permanent partial cases, 

mum $10 monthly) after the original payments equal four 
times average annual earnings or $3,500; Montana, from 50 
per cent of wages to $5 per week after 400 weeks ; Nebraska, 
from 50 per cent to 40 per cent after 300 weeks. 

7 Colorado, New York, Ohio, and West Virginia. The federal 
act also provides for payments throughout life. 

8 New Jersey, Washington, and Wyoming make no provision 
for temporary partial disability. 



COMPENSATION LEGISLATION 121 

in the last two states through the requirement of lump 
sum payments. 

Limits of various kinds and amounts are imposed 
on partial disability benefits of the same general char- 
acter as those on total disability benefits, except that 
the minimum weekly amount is omitted in most acts. 

Specific Permanent Injury Schedules. — Following 
the example of New Jersey, nearly every state has 
adopted the principle of granting benefits for certain 
specified injuries on the basis of a separate schedule, 
enumerating the injuries and usually requiring the 
payment of compensation for a definite number of 
weeks for each injury. The following quotation from 
the Pennsylvania act is typical of schedules of this 
sort: 

(c) For all disability resulting from permanent in- 
juries of the following classes, the compensation shall be 
exclusively as follows : 

For the loss of a hand, fifty per centum of wages dur- 
ing one hundred and seventy-five weeks. 

For the loss of an arm, fifty per centum of wages dur- 
ing two hundred and fifteen weeks. 

For the loss of a foot, fifty per centum of wages dur- 
ing one hundred and fifty weeks. 

For the loss of a leg, fifty per centum of wages dur- 
ing two hundred and fifteen weeks. 

For the loss of an eye, fifty per centum of wages dur- 
ing one hundred and twenty-five weeks. 

For the loss of any two or more of such members, 
not constituting total disability, fifty per centum of wages 
during the aggregate of the periods specified for each. 

Unless the Board shall otherwise determine, the loss of 
both hands or both arms, or both feet, or both legs, or 



122 COMPENSATION INSURANCE 

both eyes, shall constitute total disability, to be compen- 
sated according to the provisions of clause (a). 9 

Amputation between the elbow and the wrist shall be 
considered as the equivalent of the loss of a hand, and 
amputation between the knee and ankle shall be consid- 
ered as the equivalent of the loss of a foot. Amputation 
at or above the elbow shall be considered as the loss of an 
arm, and amputation at or above the knee shall be consid- 
ered as the loss of a leg. Permanent loss of the use of a 
hand, arm, foot, leg, or eye shall be considered as the 
equivalent of the loss of such hand, arm, foot, leg, or 
eye. 

This compensation shall not be more than ten dollars 
per week, nor less than five dollars per week : Provided, 
That, if at the time of injury the employee receives wages 
of less than five dollars per week, then he shall receive the 
full amount of such wages per week as compensation. 10 

Comoensation under these schedules is in lieu of all 

j. 

other compensation except in a few states where it is 
treated as an additional payment. 

In a few states no such schedule is inserted in the 
act and workmen suffering injuries of this sort are 
awarded compensation on the basis of loss of earning 
power. In California they are covered by the provi- 
sions for permanent disability, which fix the number 
of weeks for which compensation payments will be 
made according to the percentage of disability. 

The following table gives examples of these pro- 
visions of the California act: — 



9 A clause providing compensation for total disability. 

10 Pennsylvania Workmen's Compensation Act, § 306 (c), 



COMPENSATION LEGISLATION 123 

Percentage of Percentage of Av. Period of 

Disability Wkly. Wages Paid Compensation 

I 65 4 weeks 



60 65 240 

240 



70 



for life 



100 



240 weeks 
for life 



A further clause provides that "In determining the 
percentages of permanent disability, account shall be 
taken of the nature of the physical injury or dis- 
figurement, the occupation of the injured employee and 
his age at the time of such injury." 1X The actual 
determination of the percentage of disability is a func- 
tion of the Industrial Accident Commission which has 
prepared a Schedule for Rating Permanent Disabili- 
ties with the aid of which the percentage of disability 
may be quickly computed for various ages, occupations 
and injuries. 

Death Benefits. 12 — If a workman dies as a result 
of a compensable injury those dependent upon him 
for support are entitled to indemnity. Practically 
every act makes a distinction between total and partial 
dependents, the latter usually receiving a smaller pay- 
ment than the former, and receiving such payment 
only when there are no total dependents. The acts 
of fifteen states which provide for the payment of a 

11 Chap. 176, Laws of 1913, § 15. 

12 Oklahoma makes no provision for death benefits. 



124 COMPENSATION INSURANCE 

percentage of wages in case of total disability grant 
the same percentage to total dependents, regardless 
of number or relationship. Eight others, 13 one terri- 
tory, and the United States, provide varying percent- 
ages adjusted according to number and relationship 
of dependents, while three 14 provide flat rates, sim- 
ilarly adjusted. 15 Of the six acts requiring the pay- 
ment of lump sums at death, only two, those of Wyo- 
ming and Alaska, make such an adjustment. 16 A re- 
cently enacted law furnishes an excellent example of 
payments adjusted both to number and relationship: 

Section 307. In case of death, compensation shall be 
computed on the following basis, and distributed to the 
following persons : — 

1. To the child or children, if there be no widow nor 
widower entitled to compensation, twenty-five per centum 
of wages of deceased, with ten per centum additional for 
each child in excess of two, with a maximum of sixty 
per centum, to be paid to their guardian. 

2. To the widow or widower, if there be no children, 
forty per centum of wages. 

3. To the widow or widower, if there be one child, 
forty-five per centum of wages. 

4. To the widow or widower, if there be two children, 
fifty per centum of wages. 

13 La., Minn., Mont, Nev., N. J., N. Y., Penna., Vt., Hawaii. 

14 Ore., Wash., W. Va. 

15 Payments in Oregon vary from $30 to $50 per month ; in 
Washington and West Virginia, from $20 to $35. 

"Lump sums are paid to total dependents upon death as fol- 
lows : — in Arizona, 2400 times one-half daily wages ; in Illinois 
4 times average annual earnings ; in Kansas, 3 times average an- 
nual earnings ; in New Hampshire 150 times average weekly earn- 
ings ; in Wyoming, $500 to $2000. 



COMPENSATION LEGISLATION 125 

5. To the widow or widower, if there be three chil- 
dren, fifty-five per centum of wages. 

6. To the widow or widower, if there be four or more 
children, sixty per centum of wages. 

7. If there be neither widow, widower, nor children, 
then to the father and mother, or the survivor of them, 
if dependent to any extent upon the employee for sup- 
port at the time of his death, twenty per centum of 
wages. 

8. If there be neither widow, widower, children, nor 
dependent parent, then to the brothers and sisters, if actu- 
ally dependent to any extent upon the decedent for sup- 
port at the time of his death, fifteen per centum of wages 
for one brother or sister, and five per centum additional 
for each additional brother or sister, with a maximum of 
twenty-five per centum ; such compensation to be paid to 
their guardian. 17 

The acts of four states, New York, Oregon, Wash- 
ington, and West Virginia, and of the United States, 
provide for the continuance of benefits to a widow 
or dependent widower until death or remarriage, and 
the first three of these states extend the privilege of 
compensation to other dependents as long as depend- 
ency lasts. All others have limits on death benefits 
similar to those placed on disability benefits. It is fre- 
quently provided that payments to a dependent child 
shall continue until a certain age is reached, varying 
from fifteen to eighteen years. Lump sum benefits are 
sometimes granted on remarriage. 

The expenses of burial are everywhere paid, usually 
in addition to all other compensation, subject to limits 

17 Penna. Workmen's Compensation Act, § 307. 



126 COMPENSATION INSURANCE 

of from $50 to $200; these amounts including, in a 
few cases, the expenses of the last illness as well. 

Medical and Surgical Aid. — All but three 18 of the 
acts now in force make some provision for medical 
and surgical aid in addition to other compensation, 
though three 19 of these extend such aid only to the 
expenses of the last sickness where there are no de- 
pendents. Of the remaining acts the greater number 
call for aid in some amount with money limits of twen- 
ty-five to three hundred dollars and time limits of one 
week to four months. In a few of these, cases requir- 
ing special treatment have a higher limit than ordinary 
cases. California and Massachusetts, while they set 
a time limit of ninety days and two weeks respectively, 
permit their Industrial Accident Commissions to order 
further aid if required. Under the Connecticut act 
the employer is obliged to furnish all necessary treat- 
ment. "The employer . . . shall provide a competent 
physician or surgeon to attend the injured employee, 
and in addition shall furnish such medical and surgi- 
cal aid or hospital service as such physician or surgeon 
shall deem reasonable or necessary." 20 The federal 
act makes provision similar to that of Connecticut. 

Commutation of Payments. — While compensation 
must be paid in periodical installments in most juris- 
dictions, provision is usually made for the commuta- 
tion of these installments to a lump sum under speci- 
fied conditions or when the administrative body con- 
siders it to be in the interests of justice. Commuta- 

18 Arizona, Washington, and Wyoming. 

19 Kansas, New Hampshire, and Alaska. 

20 Connecticut Workmen's Compensation Act, § 7. 



COMPENSATION LEGISLATION 127 

tion is frequently permitted for non-residents and 
those about to remove from the state, and also where 
the commuted payments will furnish capital suffi- 
cient for entrance into some small business enter- 
prise. 

Criticism. — Compensation payments, having as 
their purpose the relief of economic need, may be 
judged by two standards, adequacy, and adjustment 
to varying degrees of need. The law should provide 
for compensation of sufficient amount and for its equi- 
table allotment. To the extent that this is not accom- 
plished an act may be said to fail of achieving its pur- 
pose. Complete adequacy, or the granting of one hun- 
dred per cent of wages, is, of course, impossible be- 
cause of the necessity of leaving some incentive for a 
man to return to work, a necessity which must always 
be borne in mind when considering a compensation 
schedule. 

There is still considerable disagreement regarding 
the proper percentage to apply to the loss of earning 
power. About two-thirds of the state legislatures 
have declared themselves in favor of a fifty per cent 
rate, while students of social science seem to favor 
paying sixty-six and two-thirds per cent. One or- 
ganization has gone so far as to recommend a seventy- 
five per cent rate. The payment of two-thirds of the 
loss of wages more nearly fulfills the purpose of a 
workmen's compensation law, but the argument is 
frequently heard that it would lead to malingery. 
Without careful supervision this is probably true, but 
with an efficient administrative bcdy the danger is 
practically nil. It is fair to say that the question is 



128 COMPENSATION INSURANCE 

still a subject of controversy with opinion tending to- 
ward the higher rate. 

Death benefits should not be paid, as they are in the 
majority of states, regardless of the number or char- 
acter of dependents. Considerations of this sort di- 
rectly determine the economic need created by the 
death of a workman and a law which requires the 
same payments to a sole survivor as to a widow with 
several children is obviously unjust. The Pennsyl- 
vania act, cited above, is to be commended in this re- 
spect, though a payment of ten per cent to a widow or 
widower for each child under eighteen, with a limit 
of sixty-six and two-thirds per cent, would be more 
nearly in accord with justice. 

The limitation of the aggregate amount of payments 
or of the number of weeks during which they are to 
continue is a widely accepted practice in our legisla- 
tion which should be condemned without reserve. The 
same reason exists for the payment of compensation 
at the end of three hundred or five hundred weeks 
as existed at the time of the injury or of the death 
of the workmen, and termination of disability or of 
dependency should alone operate as a limit to pay- 
ments. Compensation subject to other limits is bet- 
ter than none and may be, in many cases, the best 
that the legislature can be induced to provide ; but, on 
economic grounds, it is indefensible. 

Periodical installments are far superior to lump 
sums as a method of payment of compensation bene- 
fits, except in special cases. Neither an ordinary work- 
man nor his dependents have the requisite judgment 
to invest or expend properly a large sum, the payment 



COMPENSATION LEGISLATION 129 

of which is likely to lead only to extravagance and fu- 
ture want. The present popularity of life insurance 
policies payable in installments is significant of the ap- 
preciation of such tendencies even among the economi- 
cally more fortunate classes. 

The various specific injury schedules which have been 
adopted seem to be more the product of imitation than 
of reason, being based in several states on somewhat 
similar provisions in accident insurance policies. As 
a measure of economic loss they are thoroughly inade- 
quate and it is only necessary to point out that the loss 
of a particular member has a vastly different economic 
significance in various occupations to show that such 
schedules are essentially unjust. Contrast, for exam- 
ple, the effect of the loss of a left hand on a book- 
keeper and the effect of the same loss on a chauffeur. 
Such injuries should be compensated on the basis of 
the proportion of disability which they cause. 

Lastly, the limits now imposed on medical and sur- 
gical aid should be removed and provision made for 
such care as is reasonably necessary in each case. 
These limits are now often removed in practice by in- 
surance companies and employers who realize that 
proper treatment of injured men effects immense econ- 
omy in the payment of other benefits. For broader 
but similar reasons the law should require adequate 
treatment. This, as well as other liberalizing changes, 
require efficient administration to guard against abuse. 

The Computation of Compensation. — Having fixed 
upon average weekly wages as a basis for the compu- 
tation of compensation payments, the next step is to 
provide- a method for ascertaining the average wages 



130 COMPENSATION INSURANCE 

in any given case. The Massachusetts act has a typical 
provision : 

"Average weekly wages" shall mean the earnings of 
the injured employee during the period of twelve calen- 
dar months immediately preceding the date of injury, di- 
vided by fifty-two ; but if the injured employee lost more 
than two weeks' time during such period, then the earn- 
ings for the remainder of such twelve calendar months 
shall be divided by the number of weeks remaining after 
tfye time so lost has been deducted. Where, by reason 
of the shortness of the time during which the employee 
has been in the employment of his employer, or the nature 
or terms of the employment, it is impracticable to com- 
pute the average weekly wages, as above defined, regard 
may be had to the average weekly amount which, during 
the twelve months previous to the injury, was being 
earned by a person in the same grade employed at the 
same work by the same employer ; or, if there is no person 
so employed, by a person in the same grade employed 
in the same class of employment and in the same dis- 
trict. 21 

A later addition to the act provides that "if it be 
established that the injured employee was of such age 
and experience when injured that, under natural con- 
ditions, his wages would be expected to increase, that 
fact may be taken into consideration in determining 
his weekly wages." 22 

In other states a more extended definition is fre- 
quently given and specific forms of income are ex- 
cluded from the computation ; for example, money ad- 

21 Part V. § 2. 

22 General Acts of 1915, Chap. 236, § 1. 



COMPENSATION LEGISLATION 131 

vanced for expenses incidental to employment, pay- 
ment for overtime, board and lodging and gratuities 
unless the money value is fixed in the contract of hire. 
Occasionally the limits to weekly compensation are 
expressed in terms of maximum and minimum wages 
which may be used in computation. 

The Industrial Commission of Wisconsin has pub- 
lished a table which shows the compensation payable 
for total disability under the Wisconsin act, with 
wages at various levels. 23 The method of construction 
may be shown by taking a two-dollar wage as an ex- 
ample : 

Divided 
Times Equals Divided Equals Of Equals by Equals 
Daily 300 Yearly by 52 Weekly which Weekly Working Daily 

Wage Days Wage Weeks Wage 65% Compen- Days of Compen- 
sation Week sation 

$2.00 300 $600 52 $n.S4 65 $7-50 6 $1.25 

No set rule can be applied in all cases — it is neces- 
sary to leave considerable latitude of action to the 
administrative body in order to deal equitably with ex- 
ceptional conditions. 

23 Bulletin No. 12 of the Department of Labor and Industries of 
Minnesota contains extensive tables showing death and disability 
benefits payable in that state. 



CHAPTER XI 

WORKMEN'S COMPENSATION LEGISLATION IN THE 
UNITED STATES AND TERRITORIES (Continued) 

ADMINISTRATION 

The definition of administration as "legislation in 
action" x indicates the necessity of especially careful 
consideration of the administrative provisions of a 
compensation act. In order that the ends for which 
the act is designed may be achieved administrative 
machinery is necessary, for, having secured legisla- 
tive expression of compensation principles, it is essen- 
tial that the law be enforced. Practical operation de- 
termines its success or failure. To this end the states 
have adopted various means, some creating new ad- 
ministrative bodies, others relying on existing mech- 
anism. 

Administrative Commissions. — Twenty-four states, 
one territory, and the United States, have adopted the 
commission form of administration by creating bodies 
which give exclusive attention to the operation of the 
compensation law. These bodies have various titles : 
Industrial Accident Board, Workmen's Compensation 
Commission, Industrial Insurance Commission, etc., 

1 Commons and Andrews, "Principles of Labor Legislation." 
Chap. IX of this book is an excellent treatment of the general 

problems of administration. 

132 



COMPENSATION LEGISLATION 133 

but the purposes of all are the same. In its usual form 
the commission consists of three or five members with 
their headquarters at the state capitol. Certain varia- 
tions from the ordinary plan are worthy of notice; in 
Iowa and West Virginia the administrative function 
is vested in a single commissioner, in Connecticut and 
Kentucky the individual members of the commission 
are assigned to districts, and in California and Penn- 
sylvania the commission is assisted by referees. 

The primary purpose is to put into effect the provi- 
sions in the law for compensation payments and to 
see that justice is done to all parties concerned. But 
there are certain secondary purposes for which a com- 
mission is created and for which it is peculiarly 
adapted. These are the observation of the operation 
of the law, the compilation of statistics, and the ren- 
dering of reports. Legislation, to be scientific, must be 
based on experience and, if experience is to be of 
any service, it must be carefully compiled and prop- 
erly interpreted and the results placed before the 
law-making body. When the first compensation laws 
were enacted in the United States there were only for- 
eign experience and the scattering and inadequate in- 
formation of a few state labor departments as a guide. 
Hence the laws contain many unavoidable defects 
which could be appreciated only after the acts had 
been in operation for some time. By a process of 
amendment these defects may be eliminated but ac- 
curate and apposite information is needed on which 
to base corrections. Such information is best supplied 
by competent experts who are in constant and sym- 
pathetic touch with developments, such as those who 

10 



134 COMPENSATION INSURANCE 

comprise the administrative commissions which most 
of our states have adopted. 

The Duties of the Commission. — Although the 
duties of commissions vary in detail the following 
may be considered typical : 

1. Reports of injuries. Whenever an employee is 
injured an immediate report must be made to the com- 
mission and one or more subsequent reports showing 
the extent and duration of the injury. These reports 
are used as a basis for following up individual cases 
to see that the law is observed and for the compilation 
of statistics. 

2. Approval of compensation agreements. If an in- 
jury is compensable the employer, or his insurer, and 
the employee usually agree on the amount of compen- 
sation payable and file this agreement with the com- 
mission whose approval is necessary to make it bind- 
ing. 

3. Settlement of disputes. When no agreement can 
be reached regarding payment of compensation the 
disputed points may be taken to the commission where 
the usual procedure is to attempt to arrive at an ami- 
cable settlement through arbitration, a member of 
the commission and representatives of the employer 
and employee acting as arbitrators. If an agreement 
cannot be effected in this manner the dispute is 
brought before the full commission, which makes a 
ruling. In California and Pennsylvania, as noted 
above, the commission is assisted by referees who 
make investigations, assist the parties to reach an 
agreement, and hear cases in the first instance. If ap- 
peal is taken on a question of law the courts may re- 



COMPENSATION LEGISLATION 135 

view the decision of the commission and make a final 
award. 

The procedure before the commission or its repre- 
sentatives is strictly informal and they are not bound 
by the ''technical rules of evidence" nor by other 
rules which are dictated by precedent or formality. 
Their function is to learn the facts of the case in the 
simplest and most direct way and to base their deci- 
sion on a reasonable interpretation both of the facts 
and of the law. They are called upon to decide a mul- 
titude of questions which may in general be grouped 
under the following heads: (a) Does an injury ex- 
ist? (b) Is the injury covered by the law? (c) If so, 
what is its extent and what payments are due ? 

4. Reports on operation of law. By means of an- 
nual reports and special bulletins which are issued 
from time to time the commission keeps the public 
and legislators informed of conditions, an educational 
service of great value. The commission is in a posi- 
tion to perform this service because of its intimacy 
with the subject matter and because of the authority 
usually given it to require the filing of information 
and to make investigations. These reports, in their 
most useful form, not only contain statistics but pre- 
sent careful analyses and summaries of the work of 
the commission as well as recommendations for future 
improvements. 2 

5. Securing cooperation. I Four separate classes are 
intimately associated in the operation of a compensa- 
tion law ; employers, employees, insurance companies, 

2 See, for example, the annual reports of the Industrial Acci- 
dent Board of Massachusetts. 



136 COMPENSATION INSURANCE 

and physicians. Among these classes opposing view- 
points frequently develop and the central body is nec- 
essary to bring about a greater degree of harmony and 
a realization that the interests of all those concerned 
fa compensation work are mutual, though at times they 
may apparently be conflicting. 

The duties outlined above indicate particular fea- 
tures of a commission's work and suggest the reasons 
for creating such a body. Eight states and one terri- 
tory, however, have created no special administrative 
machinery, leaving the settlement of disputes to the 
courts and the collection of data and making of re- 
ports to the labor office of the state. 

Advantages of the Commission Plan. — From such 
widespread adoption of the commission form of ad- 
ministration it is evident that this plan must have 
decided advantages to offer. The greatest of its ad- 
vantages is found in the expert character of the com- 
missions. Their members devote their entire time to 
compensation work and under them is centralized all 
phases of the problem so that each may be treated in 
relation to all others and with real consideration for 
the economic purposes of the law. Judges in courts 
of law, with cases coming before them on many un- 
related subjects, can seldom make any special study 
of compensation and, even where they are able to do 
so, are likely to permit the legal viewpoint to over- 
shadow the economic. The commission is in a better 
position to put into practice the real purposes of the 
law through their knowledge of the inter-relation of 
its parts and of the several aspects of its operation. 

Another advantage of the commission is a reduction 



COMPENSATION LEGISLATION 137 

in expense and delays. By means of informal pro- 
cedure and a limitation of fees, the workingman is 
enabled to get a hearing with little or no expense and 
to secure relatively prompt decision of his case, con- 
siderations which are extremely important in the suc- 
cessful operation of a compensation law. Further, a 
commission can make investigations on its own initia- 
tive and can correct abuses and evasions of the law 
without waiting for a formal complaint and without 
confining itself to the questions which might be brought 
before it in a particular case. 

The duty of the commission to report on the opera- 
tion of the law has already been mentioned. This 
function is most important, for it applies the scientific 
methods of research and weighing of results to public 
work and enables the development of sound theory as 
a basis for future procedure. 

Disadvantages of the Commission Plan. — It may be 
argued that appointed commissions entail a consider- 
able expense, that their grade of efficiency is lower 
than that of the bench and that political considera- 
tions will hamper their work. All of these arguments 
have considerable weight but they are not sufficient 
to justify a legislature in leaving the administration of 
a compensation law to the courts. Compensation is a 
new and intricate phase of public work and a special- 
ized body of men is required to supervise efficiently its 
application. 

MISCELLANEOUS PROVISIONS 

Burden of Cost. — The burden of cost of compensa- 
tion is placed on the employer as the representative 



138 COMPENSATION INSURANCE 

of industry in all but four states. In Oregon the em- 
ployer is "authorized and required" to deduct from 
the wages of each workman one cent "for each day 
or part of a day" that the workman is employed and 
to turn this collection over to the state fund. In West 
Virginia the employer is authorized but not required 
to deduct from wages ten per cent of the premium 
payable for insurance in the state fund. In Montana 
and Nevada the employee may be asked to contribute 
not over one dollar per month to a hospital fund. 3 

General opinion is decidedly opposed to requiring 
the workmen to contribute to the cost of compensa- 
tion. His suffering and the loss of a portion of his 
wages is a sufficient share in the burden of industrial 
injuries and any other contribution is contrary to the 
best theory and practice. There is some justification 
nevertheless in a contribution to hospital expenses, 
provided all cases of illness and injury, industrial and 
otherwise, receive treatment, but the employee's pay- 
ment should represent no more than the cost of car- 
ing for non-industrial cases. 

Compensation a Preferred Claim. — Compensation 
payments generally have the same preference over 
other claims as that given to unpaid wages of labor. 
A few states make no provision for such preference, 
though the wisdom of doing so is obvious. 

Assignments and Exemptions. — In no state are com- 
pensation payments subject to assignment nor may 



3 In West Virginia the 10% is deducted by employers in coal 
mining, the largest industry, but the greater proportion of 
employers in other industries make no collection. In Nevada 
and Montana hospital agreements are general. 



COMPENSATION LEGISLATION 139 

they be attached or levied upon for claims of 
creditors. 

Accident Prevention. — It is common but by no 
means universal to authorize or require the commis- 
sion to promulgate and enforce rules for the installa- 
tion of safety devices and for the conduct of employ- 
ees. In Washington disobedience to a statute or to 
an order of the commission entails a penalty on the 
employer of fifty per cent of the compensation award- 
ed, this amount to be paid into the accident fund ; and 
if the injured employee is responsible for the removal 
of a safeguard his compensation is reduced by ten per 
cent. 

The prevention of accidents is quite as important 
as their compensation and the encouragement and re- 
quirement of preventive measures should be developed 
in harmony with the administration of the compensa- 
tion law. To this end it is wise to invest the admin- 
istrative commission with power over the prevention 
of accidents or, if that power is given to another de- 
partment, to provide for their correlation. Compen- 
sation is a palliative while prevention is a cure. 

Other Provisions. — Provisions are commonly in- 
serted in compensation laws to define the liability of 
an employer for compensation to employees of a con- 
tractor and the liability of a principal contractor to 
employees of a sub-contractor. The time and man- 
ner of filing notices of acceptance or rejection of the 
act, notices of injury, and claims for compensation 
are also usually specified and the employer is usually 
given the right to demand a medical examination at 
proper intervals. Some states specifically include or 



140 COMPENSATION INSURANCE 

exclude accidents occurring outside of the state from 
the benefits of the law. 

There are various provisions other than those al- 
ready mentioned embodying rules, definitions, and 
technical points which are necessary but not funda- 
mental. Their inclusion in a general summary of com- 
pensation principles is hardly warranted. 4 

REFERENCES 

Workmen's Compensation Laws of the United States and 
Foreign Countries, 19 16. Bulletin of the U. S. Bu- 
reau of Labor Statistics, No. 203. 

Digest of Workmen's Compensation Lazvs in the United 
States and Territories, with Annotations, Revised to 
December 1, 191 5, and Supplement, Revised to No- 
vember 1, 19 1 6. Workmen's Compensation Pub- 
licity Bureau, New York. 

Commons and Andrews. "Principles of Labor Legisla- 
tion." Harper, New York (1916). Chapter IX. 

Fisher, W. C. "The Field of Workmen's Compensa- 
tion in the United States," American Economic Re- 
view, V, pp. 221-278. 

"The Scope of Workmen's Compensation in the 
United States," The Quarterly Journal of Economics. 
XXX (November, 1915). 

"Some Defects and Suggested Changes in Work- 
men's Compensation Laws." Proceedings of the 

4 Provisions concerning the insurance of workmen's compensa- 
tion have been omitted as they will be considered in Part III. 

The Workmen's Compensation Law of New York is con- 
tained in Appendix A. This law is presented as illustrative of 
many of the principles discussed in Chapters IX, X, and XI. 
Careful study of its provisions is advised in connection with 
the study of the law of the student's home state. 



COMPENSATION LEGISLATION 141 

Conference on Social Insurance . . . Dec. 5, to 9, 
1916. Bulletin of the U. S. Bureau of Labor Statis- 
tics, No. 212, Washington (1917). 

Standards for Workmen's Compensation Laws. Revised 
to October I, 19 16. American Association for Labor 
Legislation, New York. 

Papers on ''Merits and Demerits of Different Forms of 
Administration," "Compensation Schedules of 
Awards," and "Lump Sum Settlements," Ibid. 

Rhodes, J. E. 2d. "Compensation Administration and 
Adjustments," Modern Insurance Problems. Annals 
of the American Academy of Political and Social 
Science (March, 1917), pp. 273-296. 

Workmen's Compensation. American Labor Legislation 
Review (March, 191 5). 



CHAPTER XII 

THE CONSTITUTIONALITY OF WORKMEN'S COMPEN- 
SATION LAWS 

The law of employer's liability is a formulation in 
rules of the economic responsibility of the employer 
to the employee incident to industrial accidents. 
Workmen's compensation laws constitute a set of 
rules the object of which is to substitute a new eco- 
nomic responsibility more in accord with modern con- 
ditions. In making the change a legislature is not free 
to enact any rules which may appeal to it as desirable, 
for all laws, to be valid, must be constitutional. They 
must contain no provisions which run counter to the 
provisions of the constitution of the United States 
or of the individual state. Final determination of 
the validity of a state statute rests with the Supreme 
Court of the United States, though on questions in- 
volving the constitution of a state, the decision of the 
court of last resort of the particular state is final. 

Workmen's compensation laws have frequently been 
attacked in the state courts on grounds of unconstitu- 
tionality and numerous opinions have been handed 
down, in most cases sustaining the acts. Only four 
cases have been decided by the United States Supreme 
Court. 

142 



CONSTITUTIONALITY 143 

COMPULSORY LAWS 

The Ives Case. — The first important decision on the 
constitutionality of a workmen's compensation law 
was that of the Court of Appeals of New York in 
Ives v. South Buffalo Railway Co. 1 Earl Ives, a 
switchman, alleged that he had been injured while em- 
ployed on the railroad "solely by reason of a necessary 
risk or danger of his employment" and sued the rail- 
way company to recover the compensation provided by 
the compulsory New York act of 1910 for such cases. 
The defendants admitted the allegations of Ives but 
argued that the provisions of the compensation law 
violated both the federal and state constitutions. Judg- 
ment was rendered for the plaintiff by the lower 
courts, but the Court of Appeals ruled in favor of 
the defendant, declaring the law to be repugnant to 
the constitutions of the United States and of New 
York. 

The New York act of 19 10 enumerated eight classes 
of "especially dangerous" employments and required 
that all personal injuries from accidents occurring in 
the course of these employments should be compen- 
sated by the employer according to a fixed schedule if 
the injury was in whole or part contributed to by : 

(a) A necessary risk or danger of the employment or 
one inherent in the nature thereof ; or 

(b) Failure of the employer ... to exercise due 
care, or to comply with any law affecting such 
employment. 

*94 N. E. 431 (March 24, 1911). 



144 COMPENSATION INSURANCE 

Injuries resulting in any degree from the "serious and 
willful misconduct of the employee" were excepted. 
The statute further provided that an employee might 
bring suit in the courts to enforce his right to pay- 
ments under the act. It was specifically stated that the 
act was not to affect the common law rights of the em- 
ployee but that its acceptance, or the initiation of pro- 
ceedings to recover compensation under its terms, 
should bar recovery at common law. 

The court, after a brief rehearsal of the economic 
basis of compensation as explained by the Wainwright 
Commission, which drafted the bill, made the state- 
ment that: 

Under our form of government . . . courts must re- 
gard all economic, philosophical, and moral theories, at- 
tractive and desirable though they may be, as subordi- 
nate to the primary question whether they can be molded 
into statutes without infringing upon the letter or spirit 
of our written constitutions. 

This did not prevent the court from voicing its con- 
servative fear, in another part of the opinion, that the 
arguments used to support the compensation statute 
might be carried further to justify a compulsory re- 
distribution of wealth; and, in connection with the 
fact that decrees of Parliament are the supreme law 
in England, reference was made to the "paternalism 
which logically results from a universal employer's 
liability based solely upon the relation of employer 
and employee, and not upon fault in the employer." 

The power of the legislature to abrogate the doc- 
trines of contributory negligence and of common em- 



CONSTITUTIONALITY 145 

ployment was admitted by the court but the power to 
modify the doctrine of assumption of risk was held 
to be limited by constitutional provisions. The 19 10 
law abrogated all three except in the case of accidents 
due to the serious and willful misconduct of the em- 
ployee. 

It was argued that the selection of certain specified 
industries was contrary to the fourteenth amendment 
of the federal constitution which guarantees the equal 
protection of the laws to all citizens and that the 
provisions for a scale of compensation and for the 
settlement of disputes denied the right of trial by jury 
which was guaranteed by the state constitution. The 
classification of industries was upheld as resting on 
"proper and justifiable distinctions," but no opinion 
was given on the latter question, as the members of 
the court failed to agree. 

The court then took up the argument that the new 
statute deprived the employer of property without due 
process of law and said in part: 

We conclude, therefore, that in its basic and vital fea- 
tures the right given to the employee by this statute does 
not preserve to the employer the "due process" of law 
guaranteed by the constitutions, for it authorizes the tak- 
ing of the employer's property without his consent and 
without his fault. 

Considerable attention is devoted to the police power 
under which the supporters of the law attempted to 
justify it. That it was considered to be in no wise a 
proper application of the police power is best shown 
by further quotation from the opinion : 



146 COMPENSATION INSURANCE 

. . . statutory provisions which are designed, in one 
way or another, to conserve the health, safety, or morals 
of the employees, and to increase the duties and responsi- 
bilities of the employer, or rules of conduct which prop- 
erly fall within the sphere of the police power. . . . But 
the new addition to the labor law . . . does nothing to 
conserve the health, safety, or morals of the employees, 
and it imposes upon the employer no new or affirmative 
duties or responsibilities in the conduct of his busi- 
ness. . . . Under this law, the most thoughtful and care- 
ful employer, who has neglected no duty, and whose 
workshop is equipped with every possible appliance that 
may make for the safety, health, and morals of his em- 
ployees, is liable in damages to any employee who hap- 
pens to sustain injury through an accident. 

The court goes on to say that there is 

... a vital distinction between legislation which im- 
poses upon an employer a legal duty for the failure to 
perform which he may be penalized or rendered liable in 
damages, and legislation which makes him liable notwith- 
standing he has faithfully observed every duty imposed 
upon him by law. . . . But when an industry or calling 
is per se lawful and open to all, and therefore beyond 
the prohibitive power of the legislature, the right of gov- 
ernmental control is subject to such reasonable enact- 
ments as are directly designed to conserve health, safety, 
comfort, morals, peace, and order. . . . For the failure 
of an employer to observe such regulations the legislature 
may unquestionably enact direct penalties or create pre- 
sumptions of fault which, if not rebutted by proof, may 
be regarded as sufficient evidence of liability for dam- 
ages. That must be the extreme limit of the police power, 
for just beyond is the constitution, which, in substance 



CONSTITUTIONALITY 147 

and effect, forbids that a citizen shall be penalized or sub- 
jected to liability unless he has violated some law or has 
been guilty of some fault. 

Since the act was held to deprive the employer of 
property without due process of law and not to be 
justified under the police power it was declared 'void 
and the judgment of the lower court reversed. This 
case has been considered at some length as it treats 
very fully the negative arguments on the subject of the 
constitutionality of compulsory workmen's compensa- 
tion and indicates the line of attack used in later cases. 

The Clausen Case. 2 — In this case, decided by the 
Supreme Court of the State of Washington, six 
months after the Ives case, the constitutionality of a 
compulsory workmen's compensation act was again be- 
fore the court. An action was brought to compel the 
state auditor to issue a warrant on the treasurer in 
payment for material purchased by the Industrial In- 
surance Department which had been created by the 
act. The auditor refused to issue the warrant on the 
ground that the act was unconstitutional and that 
therefore he would not be justified in recognizing an 
obligation incurred under its terms. The New York 
and the Washington laws were alike in principle, ex- 
cept that the former provided only for a right of re- 
covery while the latter required the employer to pay 
periodical amounts into an "accident fund" from which 
injured employees were to receive compensation pay- 
ments. 

2 State ex rel. Davis-Smith Co. v. Clausen, State Auditor (Sept. 
27, 1911), 117 Pac, hoi. 



148 COMPENSATION INSURANCE 

The law was challenged on four grounds : first, that 
it violated the state and federal constitutions by de- 
priving employers of property without due process of 
law; second, that it violated both constitutions as it 
did not apply equally to all persons and corporations; 
third, that it violated the state constitution which pro- 
vides that all property shall be taxed according to its 
value in money and that taxation shall be equal and 
uniform; and fourth, that it violated the state consti- 
tution by abrogating the right of trial by jury. 

Little comment is necessary concerning the last 
three contentions. The court decided that the classifi- 
cation of industries for the purposes of the law was 
not class legislation, that the contributions to the state 
fund were not taxes in the sense implied by the con- 
stitution, and that the elimination of the right of ac- 
tion for injury left the right of trial by jury nothing 
on which to operate though there was ample prec- 
edent for denying trial by jury through regulatory 
laws. 

On the question of due process of law the Washing- 
ton court reached a conclusion opposed to that of the 
New York justices. The fundamental difference lay 
in the attitude of the two bodies, the former showing 
unwillingness to apply constitutional restraints and a 
disposition to give the police power a broad interpreta- 
tion, while the latter put the burden of proof on the 
proponents of the act. 

Counsel for the auditor argued that the act created 
a liability without fault and took the property of one 
employer to pay the obligations of another. But the 
court held that : 



CONSTITUTIONALITY 149 

These conditions do not furnish an absolute test of 
the validity of the act. In the statute books of the 
several States are many statutes held constitutional by 
the courts where liability is created without fault, and 
where the property of one person is taken to pay the 
obligations of another, and this where no compensation 
is made to the person who is thus made liable or whose 
property is thus taken, other than perhaps the bestowal 
upon him of some privilege. The test of the validity of 
such a law is not found in the inquiry: Does it do ob- 
jectionable things ? But it is found rather in the inquiry : 
Is there no reasonable ground to believe that the public 
safety, health, or general welfare is promoted thereby? 
... In other words, the test of a police regulation, when 
measured by this clause'of the Constitution, is reasonable- 
ness, as contradistinguished from arbitrary or capricious 
action. 

The opinion then cites various examples of analo- 
gous statutes, many of which the New York court had 
held to rest on other grounds than those on which it 
was sought to justify the compensation act. A case 
involving the Oklahoma depositors' guaranty law was 
quoted with particular approval. 3 This law provides 
that state banks shall contribute a percentage of their 
deposits to a state fund from which depositors in in- 
solvent banks are to be indemnified. It was upheld as 
constitutional by the Supreme Court of the United 
States and its provisions offer an almost exact analogy 
to the Washington compensation law. 

Further quotation shows the extreme liberality with 
which the court viewed the police power and its re- 

3 Noble State Bank v. Haskell, 31 Sup. Ct., 186. 
11 



150 COMPENSATION INSURANCE 

luctance to interfere with enactments of the legisla- 
ture: 

If, therefore, the act in controversy has a reasonable 
relation to the protection of the public health, morals, 
safety, or welfare, it is not to be set aside because it may 
incidentally deprive some person of his property with- 
our fault or take the property of one person to pay the 
obligations of another. To be fatally defective in these 
respects, the regulation must be so utterly unreasonable 
and so extravagant in nature and purpose as to capri- 
ciously interfere with and destroy private rights . . . the 
courts are slow to inquire into the mere wisdom of a 
statute . . . the courts will interfere only when there can 
be no two opinions as to the mischievous and evil tend- 
encies of the act. The act in question here was framed 
by a commission composed of men eminent for their abil- 
ity, . . . was selected by the legislature from among a 
number of proposed acts . . . the court can not do other- 
wise than put it to the test of practice. 

Referring to the Ives case the court said: 

The act the court there had in review is dissimilar in 
many respects to the act before us, and is perhaps less 
easily defended on economic grounds. The principle em- 
bodied in the statutes is, however, the same, and it must 
be conceded that the case is direct authority against the 
position we have here taken. We shall offer no criticism 
of the opinion. We will only say that notwithstanding 
the decision comes from the highest court of the first 
State of the Union, and is supported by a most persuasive 
argument, we have not been able to yield our consent to 
the view there taken. 



CONSTITUTIONALITY 151 

Supreme Court Decisions. — As a result of the deci- 
sion in the Ives case the State of New York adopted 
an amendment to its constitution, effective January 
i, 1914, permitting the enactment of a compulsory 
compensation law. 4 A new compulsory law was en- 
acted in December, 191 3, and reenacted in 19 14, to 
take effect July 1, 19 14. This act was sustained by 
the Court of Appeals of New York as conforming to 
the provisions of both state and federal constitutions 
in Jensen v. Southern Pacific Co. 5 and in New York 
Central R. R. Co. v. White. 6 The latter was ap- 
pealed to the United States Supreme Court and a deci- 
sion sustaining the act rendered on March 6, 1917. 7 
In its opinion, the court held that the legislature had 
full power to change the law of negligence, though 
opinion was reserved on the question whether the leg- 
islature "could abolish all rights of action on the one 
hand, or all defenses on the other, without setting up 
something adequate in their stead." The question 
considered was "whether the method of compensation 
that is established as a substitute transcends the limits 
of permissible state action." In approving the method 
prescribed by the law the court said: 

. . o there is the loss of earning power; a loss of that 
which stands to the employee as his capital in trade. 
This is a loss arising out of the business, and, however 

4 Constitution of the State of New York, Art. I, Sec. 19. Sim- 
ilar constitutional provision has been made in Arizona, Califor- 
nia, Ohio, Pennsylvania, Vermont, and Wyoming. 

5 215 N. Y. 514. 

6 216 N. Y. 653. 

7 No. 320 — October Term, 1916. 



152 COMPENSATION INSURANCE 

it may be charged up, is an expense of the operation, 
as truly as the cost of repairing broken machinery or any 
other expense that ordinarily is paid by the employer. 
Who is to bear the charge? It is plain that, on grounds 
of natural justice, it is not unreasonable for the State, 
while relieving the employer from responsibility for dam- 
ages measured by common law standards and payable in 
cases where he or those for whose conduct he is answer- 
able are found to be at fault, to require him to contribute 
a reasonable amount, and according to a reasonable and 
definite scale, by way of compensation for the loss of 
earning power incurred in the common enterprise, irre- 
spective of the question of negligence, instead of leaving 
the entire loss to rest where it may chance to fall — that 
is, upon the injured employee or his dependents. Nor 
can it be deemed arbitrary and unreasonable, from the 
standpoint of the employee's interest, to supplant a sys- 
tem under which he assumed the entire risk of injury in 
ordinary cases, and in others had a right to recover an 
amount more or less speculative upon proving facts of 
negligence that often were difficult to prove, and substi- 
tute a system under which in all ordinary cases of acci- 
dental injury he is sure of a definite and easily ascer- 
tained compensation, not being obliged to assume the 
entire loss in any case but in all cases assuming any loss 
beyond the prescribed scale. 

The fact that the act creates liability without fault 
was held not to be a ground for declaring it unconsti- 
tutional and it was further supported as a legitimate 
exercise of the police power. The requirement that 
the employer secure the payment of compensation by 
taking out insurance or by giving proof of financial re- 
sponsibility, accompanied by a deposit of securities, 



CONSTITUTIONALITY 153 

was upheld as a "permissible regulation in aid of the 
system." 

Another opinion was handed down on the same day 
in the case of Mountain Timber Co. v. The State of 
Washington, 8 sustaining the Washington act. 9 It was 
pointed out that the principles involved were the same 
as those in the New York case as far as employees 
were concerned but that additional requirements were 
made on employers, who were compelled to contribute 
to an accident fund from which payments of compen- 
sation were to be made. 

After stating that the act could not be held to ex- 
clude the right of trial by jury because the abolition 
of the right of recovery in ordinary cases left nothing 
to be tried by jury, the court said: 

The only serious question is that which is raised under 
the "due process of law" and "equal protection" clauses 
of the Fourteenth Amendment. It is contended that 
since the Act unconditionally requires employers in the 
enumerated occupations to make payments to a fund for 
the benefit of employees, without regard to any wrong- 
ful act of the employer, he is deprived of his property, 
and of his liberty to acquire property, without compen- 
sation and without due process of law. It is pointed out 
that the occupations covered include many that are private 
in their character, as well as others that are subject to 
regulation as public employments, and it is argued that 
with respect to private occupations (including those of 
plaintiff in error) a compulsory compensation act does 
not concern the interests of the public generally, but 

8 75 Wash. 581; No. 13— October Term, 1916 (U. S.). 
9 Four justices dissenting. 



154 COMPENSATION INSURANCE 

only the particular interests of the employees, and is un- 
duly oppressive upon employers and arbitrarily interferes 
with and restricts the management of private business 
operations. 

Further : 

Whether this legislation be regarded as a mere exercise 
of the power of regulation, or as a combination of regula- 
tion and taxation, the crucial inquiry under the Four- 
teenth Amendment is whether it clearly appears to be 
not a fair and reasonable exertion of governmental power, 
but so extravagant or arbitrary as to constitute an abuse 
of power. All reasonable presumptions are in favor of 
its validity, and the burden of proof and argument is 
upon those who seek to overthrow it. In the present case 
it will be proper to consider: (i) Whether the main 
object of the legislation is, or reasonably may be deemed 
to be, of general and public moment, rather than of pri- 
vate and particular interest, so as to furnish a just occa- 
sion for such interference with personal liberty and the 
right of acquiring property as necessarily must result 
from carrying it into effect. (2) Whether the charges 
imposed upon employers are reasonable in amount, or, 
on the other hand, so burdensome as to be manifestly 
oppressive. And (3) whether the burden is fairly dis- 
tributed, having regard to the causes that give rise to 
the need for the legislation. 

Applying these principles it was decided that com- 
pensation was "of sufficient public moment ... to be 
administered through state agencies" and that the bur- 
den on industry was not excessive. The exclusive 
compulsory state fund principle was upheld in the fol- 
lowing terms : 



CONSTITUTIONALITY 155 

... In the absence of any particular showing of er- 
roneous classification — and there is none — the evident 
purpose of the original act to classify the various occupa- 
tions according to the respective hazard of each is suffi- 
cient answer to any contention of improper distribution 
of the burden amongst the industries themselves ... we 
are unable to discern any ground in natural justice or 
fundamental right that prevents the State from imposing 
the entire burden upon the industries that occasion the 
losses. 

• • ••••••• 

We are clearly of the opinion that a State . . . may 
require that these human losses shall be charged against 
the industry, either directly ... or by publicly adminis- 
tering the compensation and distributing the cost among 
the industries affected by means of a reasonable system 
of occupation taxes. 

We are unable to find that the Act, in its general fea- 
tures, is in conflict with the Fourteenth Amendment. 

These decisions establish the constitutionality of the 
compulsory principle so far as the federal constitu- 
tion is concerned. The divided opinion on the Wash- 
ington case, however, leaves the constitutionality of 
a compulsory exclusive state fund somewhat in doubt. 

ELECTIVE LAWS 

The decision in the Ives case led to the passage of 
elective laws in many states to dodge the constitu- 
tional question. 10 Such laws have been attacked on 

10 For an explanation of methods of election see p. 104 ff. 



156 COMPENSATION INSURANCE 

the ground that the alternatives presented are dis- 
criminatory and that in practical effect they amount to 
a deprivation of property without due process of law. 
These contentions have failed of support in the high- 
est court of every state except Kentucky where the 
original elective act, which provided for a presump- 
tion of election and which abrogated the common-law 
defenses for employers who rejected the law, was de- 
clared unconstitutional. 11 The United States Supreme 
Court has passed on two elective laws in the cases 
of Jeffrey Mfg. Co. v. Blagg, 12 and Howkins v. 
Bleakly and Garst. 13 In the former case the only ques- 
tion considered was whether the provision of the Ohio 
law limiting its application to employers with five or 
more employees was justifiable classification. It was 
decided that such classification was within the power 
of the legislature. 

The latter case, involving the Iowa elective law and 
decided on the same day as those involving the consti- 
tutionality of the New York and Washington com- 
pulsory laws, brought up the whole question of the 
validity of the principle of presumptive election com- 
bined with the removal of common law rights in case 
of rejection. The reasoning of the court in the other 
two cases applied a fortiori to this case and the opin- 

11 Kentucky State Journal v. Workmen's Compensation Board, 
170 S. W. 1 166. Leading cases for the contrary view are: In 
re Opinion of Justices, (Mass.) 96 N. E., 308; Borgnis et al. v. 
The Falk Co., (Wise.) 133 N. W. 209; State ex rel Yaple v. 
Creamer, 85 Ohio St. 349; Middleton v. Texas Power and Light 
Co., (Tex.) 185 S. W. 556. 

12 235 u. s. 571. 

13 No. 35— October Term, 1916. 



CONSTITUTIONALITY 157 

ion leaves no doubt of the constitutionality of the elec- 
tive principle. 

REFERENCES 

The cases cited in this chapter and the additional cita- 
tions which they contain are the best sources for further 
study. 



PART III 

EMPLOYERS' LIABILITY AND WORKMEN'S 
COMPENSATION INSURANCE 



CHAPTER XIII 

THE THEORY OF INSURANCE AS APPLIED TO EM- 
PLOYERS' LIABILITY AND WORKMEN'S COM- 
PENSATION. 

Insurance, from the viewpoint of most people, is an 
institution which provides an opportunity for securing 
themselves against financial loss of many kinds by 
the payment of a stated annual sum proportioned to 
the extent of the security. To secure themselves 
against loss by fire they pay fire insurance companies 
an annual premium, in consideration of which the 
companies will indemnify them for any damage by 
fire to the property insured, not exceeding the amount 
stated in the policy. To secure their families against 
loss of their income through death they make similar 
payments to a life insurance company. Practically 
every variety of financial loss may be prepared for in 
this manner. 

When the policyholder pays his premium to the in- 
suring company and receives in return a guarantee 
against loss to the extent of the sum named in the 
policy, he has relieved himself of a risk and has 
brought certainty into his affairs where before uncer- 
tainty existed. But it might seem that the insurance 
company, which has taken over the risk, has placed it- 
self in a more uncertain position by adding to the 

l6i 



162 COMPENSATION INSURANCE 

possible losses which it may be called upon to in- 
demnify — a service for which the premium might ap- 
pear disproportionately small. As a matter of fact 
the addition of a new risk, with the payment of a 
scientifically calculated premium, increases the cer- 
tainty with which the affairs of the company may be 
conducted, though not in so simple a fashion as is the 
case with the individual who pays the premium. The 
insurance company is able to assume additional risks 
with increasing certainty by reason of the application 
in its business of the theory of probability as applied 
to large groups of risks. To comprehend the insur- 
ance business in its fundamentals it is necessary to 
understand this theory on which it is founded. 

THE THEORY OF PROBABILITY 

The use of the theory of probability is based on the 
reasoned conviction that a knowledge of the past 
is a sufficient guide to events of the future ; that, given 
the same conditions, we may expect the same results. 
According to this doctrine, if one desires to predict 
the results of certain present conditions, it is only nec- 
essary to learn what results have already been pro- 
duced by exactly similar conditions. But exactly cor- 
responding conditions are difficult or impossible to find 
and, were they essential to the operation of the theory, 
little practical use could be made of it. It is possible, 
however, by the accumulation of a large number of 
cases, to secure conditions which, as a whole, approxi- 
mate those of the past and whose results may be ex- 
pected to correspond with past results. 



THEORY OF INSURANCE 163 

Accuracy of the Theory. — The accuracy of any pre- 
diction based on the theory of probabilities, or the rela- 
tive approximation of theoretical and actual experi- 
ence, depends on three factors, (i) the degree of 
correspondence between the two sets of conditions, 
(2) the accuracy of the data, and (3) the number of 
cases considered in each set. 

The use of industrial accident statistics to determine 
probable future accident rates will serve as an ex- 
ample of the influence of the first two factors. Sup- 
pose that the accident rate for the past three years 
in cotton factories averaged sixty-five per one thou- 
sand employees per year. Suppose further that dur- 
ing the coming year many new devices for the preven- 
tion of accidents are installed, and that more careful 
attention is given to the reporting of accidents. 
Knowing these facts, may we consider the average of 
the past three years a reliable index to the number of 
accidents during the coming year ? Evidently not, for 
the conditions given differ ; in the past there were not 
the same facilities for the prevention of accidents, and 
figures based on past conditions could be used only 
to indicate a maximum rate which the better equipped 
factories will probably not attain. But there is also 
an improvement in methods of accident reporting 
which suggests that the statistics of the last three years 
were probably inaccurate. More careful reporting 
may bring in accounts of accidents which before would t 
have passed unnoticed and the apparent increase from 
this source may offset the tendency of the rate to de- 
crease as a result of safety work. For statistics to be 
of the greatest service for the prediction of future 



164 COMPENSATION INSURANCE 

events the influence of new elements must be reduced' 
to a minimum, or that influence itself be made a sub- 
ject of prediction by the introduction of other statis- 
tics showing its probable effect. 

An experiment undertaken and described by Dr. 
Bruce D. Mudgett is an excellent illustration of the 
influence of the number of cases considered : 

An ordinary copper cent was flipped three hundred 
times and the results, whether heads or tails up, were 
recorded for each ten throws. If the probable experience 
had agreed absolutely with the actual, the results' would 
have shown five throws heads and five throws tails for 
each ten trials. The actual results are recorded herewith : 

Results of Each ioo Trials in Groups of Ten 

Heads 8 — 2 — 6 — 4 — 3 — 4 — 3—5 — 6 — 4 = 45 



First 100 trials 



Second 100 trials 



Third 100 trials 



Tails 2 — 8 — 4 — 6 — 7—6 — 7 — 5 — 4 — 6 = 55 

Heads 5 — 6 — 5 — 5 — 8—5 — 6 — 6 — 2 — 5 = 53 

Tails 5—4—5—5—2—5—4—4—8—5 = 47 

Heads 7 — 5 — 1 — 5 — 5 — 6 — 7 — 5 — s — 6 = 52 

Tails 3—5—9—5—5—4—3—5—5—4 = 48 



The table shows that in thirty trials of ten throws each 
the actual experience coincided with the probable in 
eleven cases, that in two instances heads appeared eight 
times out of ten, and in one case only once. These re- 
sults in groups of ten may be combined into groups of 
twenty, thirty, fifty, one hundred, or in a single group of 
three hundred, and comparisons may then be made of the 
fluctuations in those respective groups. By this arrange- 
ment the original data assume the form shown on page 
165. In this table the data are arranged in fifteen 
groups of twenty throws each, ten groups of thirty, six 
of fifty, three of one hundred, and a single group of three 






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165 



166 COMPENSATION INSURANCE 

hundred throws and the number of times the coin fell 
heads or tails is shown for each group. The important 
fact to be considered is the relation between the probable 
and the actual experience in each grouping of the data. 
For instance, in twenty throws the probability is that 
heads will appear ten times, but the figures show that in 
one case this result occurred thirteen times and once only 
six ; in thirty throws heads appeared as many as eighteen 
times in two instances and as few as eleven the same 
number of times. The following brief table shows the 
maximum and the minimum number of times the coin 
turned heads up in any single trial of the specified number 
of throws : — 

Fluctuations in Number of Times Heads 

Maximum NumberMinimum Number 

In Groups of „. _ . , Times Heads Times Heads 

limes 1 ried . , A , 

Appeared Appeared 



10 throws 


30 


8 


1 


20 " 


*5 


13 


6 


30 " 


10 


18 


11 


50 " 


6 


29 


22 


100 " 


3 


53 


45 


300 " 


1 


150 


150 



If these data are now reduced to the form of percent- 
ages the results can be more readily compared, for the 
amount of the fluctuations will then have a common basis. 
It is understood that the probability of the coin falling 
heads up is y 2 and this will be represented by fifty per 
cent. The variation of the actual percentage from fifty 
per cent will therefore be the measure of the variation. 
The table presented herewith gives the results obtained: 



THEORY OF INSURANCE 167 

Percentage of Times Heads Up 



In Groups 


of 


Maximum 
per cent 


Minimum 
per cent 


10 






8o 


10 


20 






65 


30 


30 






6o 


36.7 


50 






58 


44 


IOO 






53 


45 


300 






50 


50 



This table furnishes the basis for an important gen- 
eralization with reference to the accuracy of the theory 
of probability. It shows that where the coin was thrown 
ten times the results varied from a minimum of ten per 
cent to a maximum of eighty per cent ; where twenty 
throws were made the variation was less, viz., from thirty 
to sixty-five per cent ; and that as the number of throws 
increased the variation became smaller and smaller and 
the percentage of times heads appeared approached fifty, 
the true probable percentage. That the three hundred 
throws resulted in exactly one hundred and fifty heads 
must be regarded as an accident ; but it can be said with 
equal certainty that it would be impossible out of any 
three hundred purely chance throws to get as many as 
eighty per cent or as few as ten per cent to fall heads 
up. The generalization referred to above is as follows : 
Actual experience may show a variation from the true 
"probable" experience but as the number of trials is in- 
creased this variation decreases ; and if a very great num- 
ber of trials were taken the actual and the probable ex- 
perience would coincide. Concretely, if the coin were 
flipped ten million times and it were a pure chance which 



168 COMPENSATION INSURANCE 

way it would fall, the actual results would be so near 
five million times heads that the difference would be 
negligible. This generalization is called the law of aver- 
age. This law is fundamental to all insurance. Premium 
rates are based on probable losses and will not accurately 
measure the risk unless the actual experience approxi- 
mates the probable. That this approximation shall be 
realized it is at all times necessary to deal with a suffi- 
ciently large number of cases to guarantee that great 
fluctuations in results will be eliminated, i. e., to insure 
the operation of the law of average. 1 

It is to be noted that this generalization regarding 
the constancy of large numbers is applicable to the 
group of cases from which statistical data have been 
secured and also to the group about which it is desired 
to make predictions for the future. Both groups must 
be sufficiently large to secure the operation of aver- 
ages if accurate results are to be obtained. 

APPLICATION OF THE THEORY OF PROBABILITY TO 
THE INSURANCE OF EMPLOYERS' LIABILITY 
AND WORKMEN'S COMPENSATION 

Every employer is subject to the risk of being 
obliged to compensate his employees for injuries,, 
under the terms either of the law of employers' lia- 
bility or of a workmen's compensation act. If he de- 

1 Mudgett, "The Measurement of Risk in Life Insurance," 
Chapter XI in "Life Insurance, a Textbook," by Dr. S. S. Hueb- 
ner. Dr. Mudgett's discussion of "The Science of Life Insur- 
ance" in Part II of this book gives the reader a clear exposi- 
tion of the possibilities of the application of probabilities to past 
experience where the data are accurate and sufficient. 



THEORY OF INSURANCE 169 

nies compensation he may be put to the expense and 
trouble of defending himself in court or before an 
administrative commission, besides satisfying any 
award which may be made. Naturally, the assump- 
tion of these risks by a third party is a distinct service 
to the employer, since it relieves him of the uncer- 
tainty entailed by their existence and permits him to 
devote all of his attention to other problems, and he 
will be willing to pay for the service in proportion to 
the importance which he attaches thereto. It is for the 
performance of such a service that insurance organiza- 
tions have been formed and it is to the employer's 
willingness to pay for the service that they owe their 
existence. 

The primary problem which confronts the manage- 
ment of an insurance organization is that of quoting a 
price for its service. The premium rate, as the price 
for insurance services is designated, must be sufficient 
to cover all losses, pay all expenses and, in the case of 
stock companies, yield a margin of profit. On the 
other hand, it must be low enough to induce employers 
to transfer their risk to the organization and, in the 
interests of justice, must not be excessive and must 
discriminate between industries and employers accord- 
ing to the relative burden assumed by the insurance 
carrier. In fine, a measure of the risk assumed is 
necessary in the interests of both parties to the con- 
tract of insurance. 

The insurer finds such a measure in past experience 
and applies it to a given risk in accordance with the 
laws of probability, bearing in mind the necessity of 
homogeneous groups, of accurate data, and of a broad 



170 COMPENSATION INSURANCE 

exposure. Suppose, for example, that during the past 
three years employers in the boot and shoe industry 
have had an average expense on account of liability 
for injuries to their employees of twenty cents per 
one hundred dollars of payroll per year. Suppose 
that, during the coming year, circumstances affecting 
the occurrence of injuries, their severity, and liability 
for damages are not changed. An employer, in whose 
plant average conditions obtain, desires a quotation 
of a premium rate for the assumption of his liability 
risk. The insurer can add to the "loss cost" of twenty 
cents an amount for administrative and acquisition 
expenses, unforeseen contingencies, and profit, and 
quote a rate. Supposing these additions to total forty 
per cent of the final premium the rate in this case 
would be thirty-three and one-third cents per one hun- 
dred dollars of payroll per year. 

The receipts in premiums from this employer may 
not cover the disbursements made necessary by the 
assumption of his risk, but the receipts from all em- 
ployers should cover all disbursements and leave a 
reasonable profit. It is because of their ability to 
combine risks that the insurance company can safely 
assume a risk which it would be folly for the indi- 
vidual employer to carry. The employer can provide 
for the securing of accurate data and may have 
homogeneous groups, but only in exceptional cases 
are his groups large enough to bring into play the law 
of average. This is the peculiar function of the pro- 
fessional insurance carrier. 2 

2 It is true that some of our large corporations are in a posi- 
tion, because of their size, to become successful "self-insurers" 



THEORY OF INSURANCE 171 

Practical Qualifications. — In the application of the 
theory of probability to the business of insurance 
many difficulties are encountered. It is often neces- 
sary to quote rates before sufficient experience has de- 
veloped. In many classes of risks conditions change 
so rapidly that statistics of the past lose some or all 
of their value as a basis for estimates of future hap- 
penings. Again, certain classes are too small in extent 
to furnish a true average. 

Difficulties of this sort are met in two ways; by the 
exercise of judgment in allowing for probable inac- 
curacies, and by accumulating a fund which may be 
drawn upon to meet unexpected disbursements. Some- 
times judgment is used in quoting rates for a given 
risk by making use of the statistics of losses on 
analogous risks, sometimes an estimate of the effect 
of changed conditions will be applied to accumulated 
statistical experience with the type of risks in ques- 
tion. Judgment was a particularly large factor in 
the quotation of employers' liability insurance rates; 
it is still a factor of importance in rates for the insur- 
ance of workmen's compensation. 

The contingency reserve or surplus is an essential 
feature of any kind of insurance where statistics are 
not a thoroughly reliable guide to the future. Such 
funds are very necessary in the conduct of liability and 
compensation insurance, in which there are still many 
statistical problems to be solved and in which the ac- 
cumulation of experience covers neither sufficient risks 

and attain accurate results in the application of the theory of 
probability to their past experience. Such cases are, however, 
unusual. 



172 COMPENSATION INSURANCE 

nor a sufficient period of time to be considered thor- 
oughly reliable. 

REFERENCES 

Willett, A. H. "Economic Theory of Risk and Insur- 
ance," Columbia University Press. New York 
(1906). 

Mudgett, Bruce D. "The Measurement of Risk in Life 
Insurance," Chap. XI in S. S. Huebner, "Life In- 
surance," Appleton, New York (1915), pp. 1 19-129. 



CHAPTER XIV 

METHODS OF INSURANCE 

Self -insurance. — The term self -insurance is usually 
applied to the practice of employers who do not shift 
their risk of loss to an insurance organization. The 
term is a misnomer unless the business in which the 
employer is engaged is sufficiently extensive to produce 
dependable average results and unless a sufficient fund 
is accumulated actually to insure the payment of 
claims. Where these conditions do not obtain the 
employer is merely "carrying his own risk," the very 
opposite of insurance. 

The employer, in refusing to shift his risk of loss, 
is moved by a desire to save expense. If he carries 
his own risk he will not be obliged to contribute to 
the costs of maintaining an insurance organization. 
Further, his payments of losses will reflect conditions 
in his plant and he will retain for himself any savings 
from accident prevention. He will, however, be sub- 
ject to the embarrassment of unusually large losses 
and to the trouble and expense of adjusting claims and 
administering the payment of benefits. 

To the employee the possible disadvantages of "self- 
insurance" are very great, so great that it is not per- 
mitted under the laws of six states. The state does 
not maintain the same careful supervision of the 

173 



174 COMPENSATION INSURANCE 

solvency of industrial corporations as of insurance 
carriers, and the workman, the payment of whose com- 
pensation is dependent upon the financial strength of 
his employer, is left without recourse in the event of 
bankruptcy. The employer has also a direct interest 
in reducing the amount of compensation payments and 
may discriminate against workmen with slight phys- 
ical defects or who have families. The same interest 
may result in efforts to avoid the payment of just 
claims or to secure agreement to inadequate settle- 
ments. 

Types of Insurance Organizations. — Two general 
types of organization have engaged in the insurance 
of employers' liability and workmen's compensation, 
the stock company and the mutual association. The 
two forms differ fundamentally in their objects and 
in the control of their operation. The stock company 
is organized by a group of individuals who contribute 
their capital and control the management of the com- 
pany. In return, they receive interest on their capital 
and any profits which the company may make, unless 
the venture is unsuccessful, when they must share the 
losses to the extent of their contributions of capital. 
Mutuals are cooperative organizations of the policy- 
holders whose risks are insured and who control the 
affairs of the company and share such profits or losses 
as may result. Employers' liability insurance was 
first written by stock companies and the greater part 
of this business has always been carried by them, al- 
though two of the mutuals which are now engaged in 
insuring liability and compensation risks began busi- 
ness under the old liability laws, one of them as early 



METHODS OF INSURANCE 175 

as 1887. Both of these companies are of the pure 
mutual type. With the spread of workmen's com- 
pensation we find a considerable growth in the mutual 
insurance field and a differentiation of types based on 
the mutual principle so that now there exist not only 
the old type of pure mutuals but also mixed mutuals, 
inter-insurance exchanges, and state funds. 1 This 
last insurance carrier differs from other mutuals in 
being operated by the state while the first three owe 
their inception to private initiative and are managed 
by private individuals for their own ends. They may 
accordingly be called private mutuals to distinguish 
them from the state funds. 

Insurance Requirements. — The various states, in 
enacting compensation laws, have followed diverse 
principles regarding provision for insurance of the 
compensation obligation. In eighteen states the re- 
quirement is made that the employer insure in a 
licensed insurance carrier or satisfy the administrative 
body of his financial ability to carry his own risk — 
in some of these states the option is granted of insur- 
ing or filing a bond. Seven states simply require that 
the employer make compensation payments as required 
in the act, permitting him to carry insurance or not 

1 The term pure mutual is used to designate a corporate insur- 
ance organization managed by salaried officials who are appointed 
by a board of directors, which in turn is elected by the policy- 
holders. A mixed mutual is similar to a stock company in or- 
ganization but dividends to stockholders are limited, any excess 
earnings above a fixed percentage being returned to policy-hold- 
ers. An inter-insurance exchange is managed by an attorney-in- 
fact who represents each of the members and who receives a 
percentage of the premium for his services. 




176 



METHODS OF INSURANCE 177 

as he sees fit. Six make it obligatory on all employ- 
ers to insure with some recognized carrier, while 
one provides only for proof of financial responsibility 
or the filing of an acceptable bond. The accompany- 
ing map indicates the provisions in individual states. 2 

Methods of Insurance Permitted. — While one-half 
of the states have made no special provision for the 
insurance of workmen's compensation, leaving the 
field to existing liability companies and to private initi- 
ative in forming new organizations, the remainder 
have created new agencies for the exclusive purpose 
of assuming the liability created by their workmen's 
compensation acts. These new agencies have assumed 
two forms, the specially created mutual which owes its 
existence to the state but which is operated under 
private management, 3 and the state fund which is 
operated on the mutual plan by state officials. Of 
these states, seven, including the three which have 
adopted the specially created but privately man- 
aged mutual, permit competition by private companies, 
while six provide that the state fund shall be the sole 
carrier of this form of insurance. 4 Map. No. 3 shows 
the methods pursued in particular states. 5 

In the following discussion each variety of insur- 

2 Page 176. 

3 In Kentucky the state is represented by three of fifteen di- 
rectors. 

4 In Ohio and West Virginia private companies write work- 
men's compensation insurance by assuming the risk which the 
employer has first elected to carry himself. It was the evident 
intention of the laws, however, to exclude private companies from 
this field. 

5 Page 178. 



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178 



METHODS OF INSURANCE 179 

ance carrier will be described, its advantages and dis- 
advantages considered, and conclusions presented in 
so far as experience in this branch of insurance war- 
rants. Since the field of competition between differ- 
ent types of companies is limited almost entirely to 
compensation insurance and since the same principles 
and practices apply to both employers' liability and 
compensation business the statistics and illustrations 
used will be taken largely from experience under the 
newer form. 

THE STOCK COMPANY 

Characteristics. — The principal characteristic of a 
stock company and the feature from which it takes 
its name is the issuance of stock as evidence of owner- 
ship and in return for capital contributed by the stock- 
holders. This capital, which the law requires the com- 
pany to keep unimpaired, serves as the basis of opera- 
tions and, combined with any surplus which the stock- 
holders may have contributed or which may have ac- 
cumulated in the course of business, represents the 
financial interest of the stockholders and the financial 
backing as security for creditors. In consideration of 
their services in advancing capital the stockholders be- 
come the owners of the company and as such are en- 
titled to a pro-rata participation in the payment of 
dividends. The management of the company is super- 
vised by the board of directors who are elected by the 
stockholders, and is in active charge of salaried offi- 
cials, appointed by the board to operate the company 
in the interests of the stockholders. 

It is the practice of stock companies to charge a 



180 COMPENSATION INSURANCE 

definite premium to the policyholder for the risk as- 
sumed. If losses and expenses exceed the amount of 
premiums collected the company must bear the extra 
burden; if premiums are more than sufficient to meet 
losses and expenses, the excess is held as surplus or 
distributed in the form of dividends. 

History and Present Position of Stock Companies. 
— Before workmen's compensation was adopted in the 
United States the business of insuring employers 
against liability for accidents to their employees was 
carried on almost wholly by stock companies, only a 
very small proportion of the total business being car- 
ried by mutuals. With the advent of compensation 
the proportions have changed and, while the stock 
companies still carry about eighty-five per cent of 
the business written by private companies, there has 
been great activity in the organization of mutuals dur- 
ing the last five years. The state funds have also 
written a considerable amount of compensation insur- 
ance, although the stock companies continue to com- 
mand a major share of the premiums in states where 
competition is permitted, receiving, during 191 5, com- 
pensation premiums amounting to $31,348,758. 

Of the premiums collected, an average of about 
forty per cent is required to meet the expenses of 
conducting the business, the remainder being devoted 
to the payment of losses, including allowance for re- 
serves. 6 Any amount still remaining after the pay- 
ment of losses is considered as underwriting profit 
and may be carried to surplus or paid out in the form 

6 See Chap. XXI. 



METHODS OF INSURANCE 181 

of dividends. If losses total more than the propor- 
tion of the premium which is allotted to them the 
deficit, or underwriting loss, must be met out of other 
funds. 7 

Arguments for Insurance in Stock Companies. — i. 
Undoubtedly the advantage of insurance in stock com- 
panies which has greatest weight is the definiteness of 
the transaction. By the payment of a known per- 
centage of his payroll the insured is guaranteed com- 
plete protection against loss, regardless of the ade- 
quacy of the premiums collected. Of course, if the 
insurance company has insufficient assets to meet the 
payment of losses the policyholder is not fully pro- 
tected, but careful regulation by state officials and high 
legal standards of solvency reduce the danger of this 
event to a minimum. The insured may well feel that 
a contract with a reliable stock company relieves him 
of all necessity for worry regarding liability for in- 
juries to his employees. 

2. The security offered by a stock company is en- 
hanced by the capital fund which it is required to hold 
and which is available for the satisfaction of claims 
if other sources' fail. The amount of this capital is 
carefully regulated by state law and it must be kept un- 
impaired if the company is to continue in business. A 
further security lies in the business interests of the 
owners of the company who have contributed capital 
in the expectation of receiving dividends. Since divi- 
dends cannot be paid until all losses and expenses have 

7 It should be remembered that receipts from investment income 
and accretions may provide the company with sufficient funds to 
more than offset an underwriting loss. 
13 



182 COMPENSATION INSURANCE 

been met, there is constant pressure on the manage- 
ment to collect sufficient premiums to provide for 
profits and to keep the company in a prosperous con- 
dition. 

3. Another argument frequently advanced in favor 
of stock company insurance is based on the experience 
in the business accumulated through many years of 
liability underwriting. It should be remembered that 
experience in compensation insurance is necessarily 
limited to the five years during which there has been 
occasion for it. Therefore claims of greater efficiency 
and stability because of experience must rest on the 
analogy between the practice of liability and of com- 
pensation insurance, and on the presumption that, in 
general, the older business organization justifies the 
greater confidence. It is also to be noted that this 
field of insurance has been developed recently, only 
eleven of the twenty-seven domestic stock companies 
now operating 8 having been organized prior to 1900. 
The following table indicates developments along this 
line : — 

Date of Organization No. of Companies 

1863-1869 inclusive 2 

1 870- 1 879 
1 880- 1 889 
1 890- 1 899 
1 900- 1 904 
1905-1909 



8 Dec. 31, 1915 (as listed in the Insurance Year Book for igi6. 
Except where otherwise noted further figures used in this chap- 
ter will be from the same source). Six foreign companies also 
transact this business through United States branches. 



METHODS OF INSURANCE 183 

Date of Organization No. of Companies 

1910-1914 inclusive 6 

1915 1 

Total 27 

4. The extensive territory over which a stock com- 
pany usually does business gives it a wide exposure 
and promotes diversification of risk, two factors which 
make for more accurate operation of averages and 
hence contribute to the stability and efficiency of the 
corporation by reducing fluctuations in disbursements. 

Arguments against Insurance in Stock Companies. 
— The objections to stock company insurance arise 
both from the fundamental purpose of stock organiza- 
tions and from the methods in general use among them 
which express themselves in the form of a higher net 
premium cost to the policyholder. 

1. The stock company is, of course, operated in the 
interests of the stockholders and their desire is to se- 
cure as large a net profit as possible. This profit must 
be contributed by the insured in the form of premiums. 
Although the extra cost entailed by profit-taking may 
be offset by superior service or by economies in other 
directions, it must, in itself, be considered a disadvan- 
tage. 

2. Another item which contributes to a larger 
premium is that of acquisition expense, which con- 
sumes 17.5% of the premium and which is due to the 
general practice of soliciting risks through agents and 
brokers who receive commissions in proportion to 
premiums written. This element of cost may be justi- 



184 COMPENSATION INSURANCE 

fied provided the agent or broker serves the insured 
properly by advising him in the choice of a company 
and the reduction of hazard, and provided he exercises 
discretion in choosing risks for the company. At pres- 
ent such services are somewhat in the realm of the 
ideal. 

3. It is argued that the very extent of a stock com- 
pany's business is a disadvantage. It forces the com- 
pany to act through agents who are not in close per- 
sonal touch with the home office and tends to prevent 
careful supervision of risks. Such supervision as is 
exercised involves considerable cost because of the dis- 
tances involved. These conditions might occasion a 
larger loss ratio, larger expenses of management, or 
both. 

THE MUTUAL 

Characteristics. — The mutual insurance organiza- 
tion is an association made up of policyholders for the 
purpose of assuming their individual risks. It differs 
from the stock company in the fundamentals of its 
organization, since the policyholders control the man- 
agement and are the owners, each policyholder's par- 
ticipation being measured by the size of his premium. 
The nature of mutual insurance may be most clearly 
explained by the statement that the insured transfers 
his risk to an organization of which he is a member. 
In view of his membership he is entitled to any profits 
which may accrue and must contribute to the payment 
of any obligations which the company finds itself un- 
able to meet from premiums. Policyholders receive 
profits and pay assessments in proportion to the 



METHODS OF INSURANCE 185 

amount of premiums which they pay, but liability for 
assessments is usually limited to an amount equal to 
the original premium. 

Mutuals are often limited along geographical or 
trade lines, being organized to write insurance in a 
single state, or in a single industry or group of indus- 
tries, often those of a non-hazardous nature. Where 
such limitations obtain a company represents more of 
the cooperative spirit, and relations among its mem- 
bers are more personal. Some mutuals, however, re- 
semble the stock companies in the extent of their busi- 
ness and the impersonal methods of their management. 
The advantages of mutual organization are most evi- 
dent in connection with a preferred class of risks and 
it is among employers whose establishments are in the 
low hazard classifications that it has been most de- 
veloped. 

History and Present Position. — Of the forty-three 
mutual companies doing business December 31, 1915, 
only three were organized prior to 19 12 and only two 
date from the employers' liability period. 9 The enact- 
ment of workmen's compensation laws has given a 
great impetus to the formation of mutuals for the pur- 
pose of securing compensation insurance at a lower 
cost, and nearly all such companies now in operation 
are devoted to this line. 

Mutuals, at present, write but a small proportion of 
the total of compensation insurance and their future 
position must remain a matter of conjecture until more 
experience has developed. It is evident from the or- 

9 One of these was organized in 1887, the other in 1907. 



186 COMPENSATION INSURANCE 

ganizing activity of the past four years that the mutual 
idea will be thoroughly tried out. 

Arguments for Mutual Insurance. — i. The object 
and chief advantage of mutuals is the furnishing of 
insurance at a lower cost than in stock companies. 
This object has been attained in the past because of 
certain features of the mutual which make for 
economy. In the first place the acquisition expense 
is considerably lower, as mutuals make a practice of 
paying no commissions and effect a saving in this item 
of from ten to fifteen per cent of the premium. Sec- 
ondly, the item of profit is entirely eliminated by the 
very nature of the mutual plan. 

2. The policyholders, through their membership in 
the company, have control of its affairs through their 
right to vote at meetings and to elect directors, who 
are usually large policy holders and who are, there- 
fore, directly interested in efficient management. 

3. If the risks are limited to a given locality or to 
certain trades the mutual has the advantage of being 
able to keep them under close supervision at a mini- 
mum of expense and to enforce standards which will 
result in a low loss ratio. It is too early as yet to 
prophesy to what extent advantage will be taken of 
this opportunity but the example of the Factory 
Mutuals in fire insurance furnishes evidence of its pos- 
sibilities. 

4. Mutual insurance offers an opportunity for the 
combination of a selected group of risks in order to 
secure the benefits of a favorable loss experience. By 
careful restriction of the risks which will be accepted 
a considerable saving may be made. 



METHODS OF INSURANCE 187 

Arguments against Mutual Insurance. — i. The tak- 
ing out of a policy in a mutual company compels the 
insured to assume his share of the risk entailed by en- 
trance into the insurance business. He becomes liable 
for assessment, usually to the amount of the original 
premium, in case the company's funds are insufficient 
to meet its obligations. This risk is particularly evi- 
dent in the liability and compensation insurance busi- 
ness because of its comparative youth, the lack of re- 
liable fundamental statistics, and the long period over 
which the payment of losses extends. 

2. Not only is this branch of insurance a compara- 
tively new field but the mutual organizations engaged 
in it have had, with two exceptions, a rather limited 
experience, most of them having been brought to- 
gether during the last four years. This disadvantage 
is somewhat offset where a mutual engages executives 
who have previously been in the same line of work. 

3. The small size of most mutuals makes less cer- 
tain the operation of averages. The exposure is lim- 
ited in extent and diversification and a heavy loss 
in any one risk or locality may make an undue show- 
ing in the loss ratio. 

4. The security offered by a mutual lacks the capi- 
tal fund which is possessed by the stock companies 
and, if young, the large surplus accumulation also. 

5. There is some danger that the managers of a mu- 
tual will, in their desire to make a good showing, de- 
clare unwarranted dividends to policyholders and 
thereby reduce the surplus to a point where it may be 
insufficient to meet emergencies. 



CHAPTER XV 

METHODS OF INSURANCE (Continued) 
THE STATE FUNDS 

Characteristics:- — The state fund is a mutual plan 
for the insurance of workmen's compensation, differ- 
ing from private mutuals in three particulars : first, 
it is created by a special act of the legislature ; second, 
it is managed by state officials ; third, it is often grant- 
ed certain assistance, privileges, or immunities, by the 
state. 1 In all cases the state fund is created by legis- 
lative enactment which is an integral part of a work- 
men's compensation act or supplementary thereto, and 
it is usually provided that the same body which has 
charge of the administration of other features of the 
compensation legislation shall also manage the fund. 
In two states, however, a special body has been created 
to take charge of the management. 

The employer who insures his risk in a state fund 
pays a prescribed premium in return for which he is, 
in nine states, relieved of liability for future assess- 
ments and for payments to injured workmen. 2 In 

1 No state guarantees the solvency of its fund — the state' fund 
is an example of state-managed insurance rather than of state 
insurance. 

2 Where insurance in the state fund is compulsory an increase 
in rates may be equivalent to an assessment to cover liabilities 
created in the past. 

188 



METHODS OF INSURANCE 189 

four states the policyholder is in practically the same 
position as to additional liability as he would be were 
he insured in a private mutual, i. e., he is required 
either to pay his share of any liabilities which the fund 
is unable to meet or to pay to his employees any com- 
pensation to which they are entitled but which they 
are unable to recover from the fund. In all states the 
employer is entitled to his share of any profit which 
the fund may make — this may be returned to him in 
the form of dividends, reduced rates, or exemption 
from the payment of premium for a certain pe- 
riod. 

In states where private companies are permitted to 
compete with the fund the gross rates of the latter 
are lower than those of the companies, with the ex- 
ception of California, where the same rates are en- 
forced for all insurance carriers. The rates of two 
of the funds represent a horizontal reduction of ten 
per cent, and of two others, five and fifteen per cent, 
respectively, from the stock company rates on similar 
classifications. In eight states it is provided that the 
administrative expenses of the funds shall be paid by 
the state, in one of which, Pennsylvania, the state sub- 
sidy is to cease on July i, 19 19. In New York the 
expenses of the fund were paid by the state up to 
July 1, 191 6 — since that time the fund has been re- 
quired to support itself. In Nevada the state pro- 
vides offices and does the printing for the fund, while 
in Oregon an amount equal to one-seventh of the com- 
bined payments of employers and employees is con- 
tributed by the state. Wyoming, in addition to pay- 
ing expenses, appropriated $30,000 as a nucleus for 



190 COMPENSATION INSURANCE 

the fund and appropriates each year a sum equal to 
one-quarter of the total payments of employers. The 
California fund holds a state appropriation of $100,- 
ooo as a catastrophe reserve. 

In California, Michigan, and Pennsylvania the rates 
and reserves of the funds are under the supervision 
of the state insurance department. Other states leave 
these matters entirely to the discretion of the man- 
agers of their funds, with the exception of New York, 
where the insurance commissioner supervises the re- 
serves. 

In all but three states a catastrophe reserve is main- 
tained, usually in accordance with statutory provi- 
sions; for example, Maryland requires that ten per 
cent of the premium income shall be set aside until 
$50,000 is accumulated, and that thereafter five per 
cent shall be set aside until there is a sufficient amount 
to care for the catastrophe hazard. 

The expense ratio of the state funds is unusually 
low, averaging approximately twelve and one-half per 
cent of premiums. This is partially accounted for by 
the fact that, like mutuals, the acquisition expense is 
small, no commissions being paid. 

History and Extent of Business. — The first state 
fund to be established in the United States was cre- 
ated by the workmen's compensation act of the state 
of Washington, which went into effect in 191 1. Since 
that time twelve other states have adopted this meth- 
od of insurance, the youngest of the funds being that 
of Pennsylvania, which commenced operations Janu- 
ary 1, 191 6. In the following table is shown the 
growth of the state fund principle : 



METHODS OF INSURANCE 191 

State Funds in the United States 

Date of establishment .... . ion 1012 1913 1914 1915 1916 

Funds established during 

the year 1 2 2 5 2 1 

Total in operation 1 3 5 10 12 13 

States in which established Wash. Mich. Nev. Cal. Colo. Pa. 

Ohio W. Va. Md. Mont. 
N. Y. 
Ore. 
Wyo. 

State funds received $7,600,000 in premiums dur- 
ing the year 191 5. They write insurance, of course, 
only within the borders of their respective states, 
carrying the entire business of the five states where 
they have a monopoly, and the greater part of the 
business of Ohio and West Virginia, where an em- 
ployer may insure in a private company after securing 
permission to carry his own risk. Figures from the 
seven states which have competitive funds indicate 
that these receive from one-tenth to one-third of the 
total premiums. 

Arguments in Favor of State Funds — 1. The pre- 
mium rates, which are often lower than those of other 
carriers, may be lowered still further by the payment 
of dividends, since the funds are operated on the mu- 
tual plan. Where the state pays expenses of admin- 
istration or contributes a subsidy the employer may 
be benefited by the consequent reduction in the amount 
of his own contributions. 

2. In those states which provide that insurance in 
the state fund shall relieve the employer of all liabil- 
ity for payments to his injured workmen, for the pay- 
ment of assessments to the fund, or for both, he is 
given absolute security in return for his premium. 

3. The state fund, managed in all cases by public 
officials, and usually by the same body which admin- 



192 COMPENSATION INSURANCE 

isters the compensation law, may be operated to carry 
out the fundamental purposes of compensation legis- 
lation, conserving impartially the interests of the em- 
ployer, of the employee, and of the general public. 

4. A monopolistic state fund, by the concentration 
of the entire compensation insurance business of a 
state, promotes uniformity in the treatment of employ- 
ers and employees and eliminates the waste due to com- 
petitive expenses and duplication of equipment and 
organization. 

5. A competitive state fund may, through its rates 
and service, act as a regulatory agency, compelling 
private companies to adhere to fair rates and prac- 
tices. 

6. The state fund is as carefully regulated as pri- 
vate companies in some states and might be so regu- 
lated in all. 

7. Such criticism of the state funds as is tenable 
is directed, not at the principle, but at the methods 
which have been followed in applying it. State fund 
insurance, since it is a new venture in the United 
States, must pass through a period of development and 
experimentation, the cost of which is fully justified by 
the possible future service to be expected from this 
plan of insurance. 

Arguments against State Funds. — 1. The manage- 
ment of the funds is vested in appointive state officials, 
and politics plays too large a part in their selection. 
Insufficient salaries, political considerations, and in- 
secure tenure of office all tend to produce the ineffi- 
ciency which is a characteristic of state-managed in- 
stitutions. 



METHODS OF INSURANCE 193 

2. Neither the policyholders nor anyone financially 
interested in the success of the funds have any direct 
control over their management. 

3. In the event of insolvency as a result of ineffi- 
cient management or of rates fixed by the legislature 
the employer will be obliged to make further contribu- 
tions or, where he is relieved of all liability, the em- 
ployee will lose a portion of his compensation. If the 
deficit is made up from the state treasury it will in- 
volve a higher tax rate. There is also some question 
as to whether a statute relieving the employer of all 
liability on the payment of a stated premium would 
be held constitutional by the courts. 

4. The payment of expenses by the state gives the 
fund an unfair advantage in competition with pri- 
vate companies which must meet all expenses from 
premium receipts. 

5. The state fund is not in a position to reject poor 
risks and is forced to accept many which private com- 
panies are unwilling to carry. 

6. The practice of fixing rates by legislative enact- 
ment, which obtains in some states, is unscientific and 
impractical, involving unfairness in the distribution 
of compensation cost and endangering the solvency 
of the fund. 

7. The state should confine itself to regulation and 
should not attempt to enter business enterprises which 
can be conducted by individual initiative. 

CONCLUSION 

There is the utmost disagreement on the question 
of the relative desirability of different methods of in- 



194 COMPENSATION INSURANCE 

suring the compensation obligation. Stock companies, 
private mutuals, and state funds all have their ardent 
proponents and equally ardent opponents, though the 
really big issue is between state-managed and private- 
ly managed enterprise. The literature which has ap- 
peared in support of any one of these forms (and 
this has generally meant in condemnation of all oth- 
ers) has been too evidently partisan to furnish a sat- 
isfactory basis for a decision and has likewise failed 
to take into consideration the viewpoints of all of the 
parties in interest. To arrive at any proper conclu- 
sion all of these viewpoints must be given their due 
weight. 

In attempting to come to a decision respecting the 
relative merits of these three methods of insurance, 
it should be remembered that there is being sought an 
answer to the question — which of these is best adapted 
to carry out the fundamental purposes of workmen's 
compensation. Which contributes most to the well- 
being of employer, of employee, and of society? A 
judgment of this sort must reflect not only theoretical 
possibilities but actual experience, for it is often found 
that unforeseen obstacles prevent the realization of 
expected advantages, while practical application may 
develop a means of counteracting objectionable fea- 
tures or disclose the remoteness of feared contingen- 
cies. Further, there may be a necessity of compro- 
mise between apparently conflicting viewpoints though, 
in the long run, provision for the welfare of any one 
class will probably redound to the benefit of all classes. 

Before proceeding further the criteria to be ap- 
plied to any given scheme must be 'determined. These 



METHODS OF INSURANCE 195 

criteria should represent the viewpoints of the three 
great classes which are directly concerned in the 
decision and can best be stated in terms of their re- 
spective interests. The method of insurance which 
most fully satisfies all of these, always having proper 
regard for the relative importance of each, should be 
considered most worthy of adoption. All three 
classes, employer, employee, and society, are interested 
in the elimination of litigation and in the prevention 
of accidents. Society and the employer are interested 
in effecting insurance at the lowest possible cost, while 
both employer and employee demand a method of in- 
surance which will furnish the greatest security and 
promote amicable relations between labor and capital. 
Lastly, the workman is peculiarly interested in secur- 
ing a fair adjustment of his claims for compensation 
and in receiving prompt relief in case of injury. 

Conclusions from Experience. — Whatever may be 
one's judgment on a priori grounds, it may be safely 
stated that the practice of workmen's compensation 
insurance in the United States has not demonstrated 
the superiority of any one form of carrier. Defects 
and advantages have developed in each method but in 
no case have they been essential. Stock companies and 
mutual companies have been forced to liquidate and 
state funds have been unable to meet their obliga- 
tions in certain hazardous classifications. Yet these 
failures have meant inefficient management or im- 
properly drafted laws, both of which can be corrected. 
In the majority of cases private and state institutions 
alike have met the financial obligations imposed upon 
them. 



196 COMPENSATION INSURANCE 

Nor does the study of financial statements and of 
records of loss expense and dividend ratios yield con- 
clusive material. Out of premiums received during 
the past five years reserves have been set up from 
which payments must be made for an indefinite future 
period. Whether these reserves are adequate is not 
definitely known, but on their adequacy depends in 
considerable measure the future financial status of the 
insurance carriers. It is evident, of course, that the 
carrier which has devoted the largest relative amount 
of money to reserves and surplus is, as regards those 
items, in the strongest financial position ; but other 
carriers will argue that their reserves and surplus are 
adequate and that a larger amount only means an ex- 
cessive premium charge. 

It should be borne in mind also that ratios of loss, 
expense, or dividends mean little unless interpreted in 
the light of all the facts. A high loss ratio may mean 
adequate reserves, excessive reserves, poor risks, or 
lavish loss settlements; a low loss ratio may mean in- 
adequate reserves, careful selection of risks, an effi- 
cient claim department, or extraordinary good for- 
tune. A high expense ratio may be the result of ineffi- 
cient management, careful provision for the future, 
or unusually good service to policyholders; a low ex- 
pense ratio, the result of efficient management, un- 
wise retrenchments, or inferior service. Similarly, 
large dividends may reflect real savings or specula- 
tive management ; low dividends, a policy of thorough- 
going preparation for the future or managerial incom- 
petence. These forces and others lie back of the bare 
figures and it is especially important to consider them 



METHODS OF INSURANCE 197 

until sufficient experience has developed to enable 
more accurate conclusions to be drawn from simple 
ratios. Ratios, unless viewed in the light of the causes 
which have produced them, are never conclusive ; they 
are least valuable when they are the result of limited 
experience. 

The Future. — Owing to the inconclusiveness of 
available experience the. question of what provision a 
compensation law should make for insurance is a 
mooted one and there is little probability of final an- 
swer in the near future. It is well that diverse 
experiments are being carried on, for they will 
gradually furnish material on which to base sound 
legislation. There is undoubtedly much cogency in the 
argument for competition, partly because it gives em- 
ployers with varying types of mind and in varying in- 
dustries an opportunity to select their insurance car- 
riers, and partly because it tests out the different prin- 
ciples, one against the other. Against many present 
methods of competition, however, too much cannot be 
said ; they savor of the political campaign and stress 
partisan conclusions rather than scientific evidence. 
Many broad statements have been made with small 
statistical backing and many generalizations have been 
drawn from preconceived ideas rather than from com- 
prehensive data. 

REFERENCES 

Papers on "Merits and Dements of Different Methods of 

Carrying Workmen's Compensation Insurance." 

Proceedings of the Conference on Social Insurance. 

. . . Dec. 5 to 9, ipi6. Bulletin of the U. S. Bureau 

of Labor Statistics, No. 212. Washington (1917). 
14 



198 COMPENSATION INSURANCE 

Ryan, H. E. "Methods of Insuring Workmen's Compen- 
sation." Modern Insurance Problems, Annals of 
the American Academy of Political and Social Sci- 
ence (March, 19 17), pp. 244-254. 

Downey, E. H. "The Organization of Workmen's Com- 
pensation Insurance." Journal of Political Economy 
(December, 1916), pp. 951-984. 

Rubinow, I. M. "Social Insurance." Holt, New York 
(1913). Chap. IX. 

Insurance Year Book: Life, Casualty, and Miscellaneous 
Insurance. Published annually by The Spectator Co., 
New York. 

Special Report on The State Industrial Insurance Depart- 
ment. Department of Auditor of State, Olympia, 
Wash. (1916). 

Report of the Voluntary Investigating Commission on 
Workmen's Compensation. Frankfort, Kentucky 
(1916). Pp. 50-53, 60-63. 

Report of the Joint Special Recess Committee on Work- 
men's Compensation Insurance Rates and Accident 
Prevention. Boston (1917). 



CHAPTER XVI 

THE POLICY CONTRACT 1 
GENERAL PRINCIPLES 

A Contract of Indemnity. — The relationship between 
insurer and insured is governed by the terms of the in- 
surance policy and by the principles of law applicable to 
its interpretation. Basically, the policy is a contract of 
indemnity — a promise by the insurer, in consideration 
of a premium payment, to indemnify the insured for 
loss arising from certain specified events. From the 
principle of indemnity it follows that an insurable in- 
terest is prerequisite to a valid contract of insurance. 
Insurable interest is "every interest in property or in 
relation thereto or liability in respect thereof, of such 
a nature that a contemplated peril may directly dam- 
nify the insured." 2 

Although the agreement is aleatory or speculative in 
one sense, that is, the parties may not know whether the 
event insured against will occur or not, and in return 
for a comparatively small sum of money the one party 

1 In this chapter the essential and peculiar features of the con- 
tract are considered. For more complete information the reader 
is referred to the form of contract contained in Appendix B and 
to the text books on insurance law. Thorough study of the 
provisions of the contract form is advised. 

2 Elliott on Insurance, p. 40. 

199 



200 COMPENSATION INSURANCE 

assumes the risk of incurring liability to a much greater 
amount, nevertheless, compensation for a real loss, rather 
than a purely speculative venture, must be the aim and 
object, and consequently the party insured must be able 
to show an insurable interest in the subject of insurance, 
an interest of a material and valuable character, and not 
merely moral and sentimental, or else the contract will be 
altogether void. The doctrines of indemnity and of the 
necessity of an insurable interest are correlative and com- 
plementary in all branches of the law of insurance. 3 

The rule requiring an insurable interest to give sup- 
port to the contract exists in this country irrespective of 
statutory provisions, and everywhere is grounded upon 
important considerations of public policy. Without it 
the contract would be a wager, and a wager policy is more 
to be condemned than an ordinary wager, since it is not 
only at variance with sound business ethics, but it also 
offers peculiar inducements to the assured to bring about 
fraudulently the event insured against. 4 

A Personal Contract. — The insurance policy is a 
personal contract binding only as between the original 
policyholder and the insurer, unless the latter consents 
to an assignment. 5 The risk assumed by the insurer is 
conditioned in large degree by the character and hab- 
its of the insured through his supervision of the opera- 
tions covered by the contract. To allow assignment 
without permission would be unjust since it might 
involve an increased moral hazard. In liability and 
compensation insurance the moral hazard is deter- 

3 Richards on Insurance, pp. 28-9. 

4 Richards, op. cit., p. 32. 

5 The life insurance policy is an exception to this general rule. 



THE POLICY CONTRACT 201 

mined by relative attention to the prevention of indus- 
trial accidents and to care for injured employees. 

Rules of Construction. — Two rules followed by the 
courts in the construction of contract provisions are 
particularly important ; the rules that the insured is to 
receive the benefit of any doubt, and that endorse- 
ments take precedence over the original terms of the 
contract. The first of these was adopted on the theory 
that the insurer, who had drawn up the contract, 
should be responsible for the elimination of ambiguity 
and should not be allowed to take advantage of the 
policyholder by the use of equivocal expressions. 
Doubtless the unfair practices of some of the earlier 
companies in inserting provisions in their policies for 
the express purpose of avoiding liability on technical 
grounds had much to do with the attitude of the courts. 

The rule that endorsements which disagree with 
the terms of the original contract shall control is an 
application of the familiar principle of contract law 
that, in event of conflicting agreements, the latest 
meeting of the minds shall govern. An endorsement 
is assumed to be of later date than the policy itself. 

EMPLOYERS' LIABILITY CONTRACT 

The Obligation Assumed. — The employers' liability 
contract is in no sense an agreement to provide com- 
pensation to injured employees ; its sole purpose is to 
relieve the employer of the financial consequences of 
injuries received by his workmen. But it is more than 
a contract to reimburse the employer for actual loss 
incurred, it is also a contract of service. The insurer 



202 COMPENSATION INSURANCE 

agrees to assume the losses due to legal liability of 
the employer on account of accidental bodily injuries 
to his employees, to investigate such accidents and ad- 
just resultant claims, to defend damage suits whether 
groundless or not, and to pay court costs and other 
expenses arising out of injuries and claims. Indem- 
nity for loss on account of legal liability for damages 
is limited to a certain sum for one injured person, and 
the total indemnity payable for one accident is likewise 
limited. The "standard limits" are $5,000 and $10,- 
000; other limits involve an adjustment of premium 
to reflect the changed hazard. 

The policy covers all employees of the insured 
whose compensation is stated, with the usual excep- 
tion of children employed in violation of an age law 
("or under the age of fourteen years if there is no le- 
gal age limit") and of convict labor. Injuries result- 
ing from the business operations of the insured are 
covered, including ordinary repairs ; but extraordinary 
repairs, alterations, and construction work may be in- 
cluded only under a special classification or endorse- 
ment. Injuries occurring on the premises of the in- 
sured or on those immediately adjoining, or in other 
places if the injured is a driver or driver's helper, are 
always covered ; and some policies include other speci- 
fied classes of employees wherever they may be, or 
make no restrictions as to location. 

Premium Computation. — The premium paid by the 
employer is based on the total remuneration received 
by his employees during the policy period. An esti- 
mate of the payroll is furnished to the insurer in the 
application for insurance as a basis for the payment of 



THE POLICY CONTRACT 203 

an advance premium. At the end of the period the 
premium is adjusted to the actual payroll, the employer 
paying an additional charge if the actual is greater 
than the estimated and the insurer returning a pro- 
portionate amount if the estimated payroll is greater. 
In all cases the insurer is entitled to a minimum pre- 
mium named in the policy. The insurer has the right 
to examine the books of the insured at any reason- 
able time while the policy is in force and within one 
year after its termination for the purpose of determin- 
ing the actual remuneration paid. 

Inspection. — The right is reserved to inspect the 
place of business of the insured while the policy is in 
force in order to suggest means of accident prevention 
and to learn of changes of hazard. 

Cancellation. — The contract may be cancelled by no- 
tice to either party stating the date thereafter when 
cancellation is to become effective. If the insured 
cancels the policy and is retiring from the business 
described in the policy or if the insurer cancels, a pro 
rata premium for the period during which the policy 
has been in force is retained by the insurer. If the in- 
sured cancels and is not retiring from business, a short 
rate premium, an amount somewhat larger than the 
pro rata and never less than the minimum premium, 
is retained. Provision for short rates is justified by 
the fixed charges connected with the handling of all 
policies. 

Notices. — The insured is required to give immediate 
written notice to the insurer of all accidents which oc- 
cur, of all claims made, and of all suits brought, and 
must forward all papers served upon him. He must 



204 COMPENSATION INSURANCE 

also give full particulars and aid the insurer in every 
way, but is not allowed to assume liability nor to 
give assistance other than "first aid" without written 
permission from the insurer. Fulfillment of these re- 
quirements demands a "reasonable" compliance with 
their terms — the courts will not allow the insurer to 
escape liability on purely technical grounds. 

Warranties. — Certain statements made by the in- 
sured and incorporated in the contract are declared 
to be warranties except where it is specifically stated 
that they are estimates. 6 Under the legal definition 
of a warranty proof that any such statement is not lit- 
erally true causes avoidance of the contract. Most 
states now have laws, however, which provide that all 
statements in a policy shall be regarded as represen- 
tations, -even though they appear in the form of war- 
ranties. In the absence of fraud it is necessary to 
prove that a representation is both material and un- 
true in order to void the contract. To be material a 
statement must be such as would affect the acceptance 
of the risk or the amount of the premium. 

Miscellaneous. — Other clauses are usually inserted 
providing that no assignment shall be valid without 
the written consent of the insurer; that if insurance 
is carried with other carriers, liability for payment of 
claims shall be limited to the same proportion of the 
claim as the sum insured under the terms of the par- 
ticular policy bears to the total insurance carried; 
that the insurer shall be subrogated to the rights of 
the insured to recover damages from third parties; 

8 See "Declarations" in policy form, Appendix C. 



THE POLICY CONTRACT 205 

that changes shall not be made except by endorsement 
signed by certain officers of the company; and that 
state statutes dealing with the serving of notices or 
the institution of legal proceedings supersede policy 
provisions which are inconsistent with them. Such 
provisions are common to many forms of insurance 
and have no peculiar significance in liability insur- 
ance. 

WORKMEN'S COMPENSATION CONTRACT 

The Obligation Assumed. — The workmen's com- 
pensation insurance contract differs fundamentally 
from the employers' liability contract. It is an agree- 
ment made with the employer to pay indemnity to his 
workmen or to their dependents according to the terms 
of a compensation act which is considered a part of 
the policy contract. All employees whose remunera- 
tion is declared by the employer are covered and there 
are no limitations on the amount payable or the loca- 
tions covered, other than those expressed in the stat- 
ute. Such an agreement is usually required by state 
law, but it is the practice of insurers to write all con- 
tracts on much the same basis, some having standard- 
ized contracts which are used in all states, the com- 
pensation law of a particular state being cited by en- 
dorsement. 

Provision similar to that contained in the employ- 
ers' liability contract is made for service to the in- 
sured, for defense of suits, and for payment of ex- 
penses, with the addition of specific agreements to sug- 
gest means of accident prevention to the employer, 



206 COMPENSATION INSURANCE 

and to furnish medical and surgical aid and supplies, 
or pay funeral expenses as required in the law. 

Premium Adjustment. — An advance premium is 
paid on the estimated payroll which is adjusted to ac- 
tual payroll at the end of the policy period. Clauses 
are often inserted to provide for changes in manual 
rates, for schedule and .experience rating modifica- 
tions, and for an adjustment of rates to conform to a 
change in the hazard due to court decisions holding 
the compensation law unconstitutional in whole or in 
part. 

Notice. — That notice of the occurrence of an acci- 
dent to the insured employer shall be considered notice 
to the insurer is required by the laws of many states 
and is accordingly a contract provision in those states. 

Cancellation. — Cancellation may be effected by 
either party on ten days' notice in most states, though 
a longer notice is required in some. Four states re- 
quire that notice of cancellation must be sent to the 
administrative body. 

In other respects the compensation contract is sim- 
ilar to the liability form. 

Approval of the Contract. — Certain states 7 require 
that forms of contract must be submitted to a state 
official for approval and in some other states policy 
forms are regulated under the power of the adminis- 
trative officials to reject an unsatisfactory form as 
being unacceptable as evidence of insurance. 

The differences between the employers' liability and 

7 Connecticut, Indiana, Kentucky, Louisiana, Maryland, and 
Massachusetts. New York and Maryland prescribe standard 
policy forms to be used by all insurers. 



THE POLICY CONTRACT 207 

the workmen's compensation contract are expressive 
of the relative status of the insurance carrier under 
the two regimes. Under the old system of employers' 
liability the carrier existed merely as a convenient busi- 
ness device through which an employer might pro- 
tect himself from the danger of heavy losses in dam- 
ages to workmen and to which he could shift the trou- 
ble and expense of handling claims. The interests of 
employees were not considered. 

Workmen's compensation being primarily for the 
benefit of the employee, it is essential that emphasis 
be placed on security and fairness of payment to him. 
The insurance carrier is now an important administra- 
tive unit engaged in carrying out the broad social pur- 
poses of the law as well as a necessary protection and 
agent of the employer. 

REFERENCES 

Rhodes, J. E. 2d. "The Liability Contract." Liability 
and Compensation Lectures, Insurance Institute of 
Hartford. Hartford (1913). 

Elliott on Insurance, pp. 14-163, 451-458. Bobbs-Mer- 
rill, Indianapolis (1907). 

Richards on Insurance Law, pp. 27-220, 664-678. Banks 
Law Publishing Co. New York (1909). 

De Leon, E. W. Manual of Liability Insurance. Spec- 
tator Co. New York (1909). 



CHAPTER XVII 

MANUAL PREMIUM RATES 

The premium, in insurance, is the price which the 
insurance carrier receives for assuming risk and for 
rendering services incidental thereto. An ideal pre- 
mium rate is an exact measure of the risk assumed, 
plus a proportionate part of the expenses of conduct- 
ing the insurance business, and is levied on the basis 
of a unit of exposure to the risk. In employers' lia- 
bility and compensation insurance the unit of exposure 
is one hundred dollars of yearly payroll and the pre- 
mium to be paid by any given employer is as many 
times the quoted rate as one hundred dollars is con- 
tained in his yearly payroll. 

Employers' Liability Rates. — In quoting rates for 
employers' liability insurance the companies have been 
hampered by a lack of statistical experience and by 
unregulated competition. These rates have reflected 
relative hazard between states, industries, and plants 
only in a very general way. Such experience as has 
been accumulated has been of small value because of 
the fluctuating nature of the hazard, and rates have 
been quoted largely on the basis of ''underwriting 
judgment," a method which involves too much of the 
human element to be entirely trustworthy. Rates have 
been further influenced by the practical necessity of 

208 



MANUAL PREMIUM RATES 209 

"getting the business" and have frequently been cut to 
unremunerative levels in order to hold risks against 
competition. Such practices necessarily mean unrea- 
sonably profitable business elsewhere, or insolvency, 
and they increase the discrepancy between actual and 
ideal rates. Attempted cooperation to maintain ade- 
quate and just rates has failed and opportunistic meth- 
ods have been generally recognized by the insurance 
carriers as unavoidable. 

Altogether, the insurance of employers' liability has 
never been on a scientific basis and, while it has rested 
fundamentally on the probability concept, the appli- 
cation of the theory to the insurer's entire group of 
risks has been inexact and, to the individual risk, ex- 
tremely rough. 

WORKMEN'S COMPENSATION RATES 

History. — When workmen's compensation insur- 
ance was first written in the United States it was 
necessary to quote rates on a new hazard which could 
not be measured by past experience. Use was made 
of every possible source of data which would shed 
light on the problem; labor statistics, experience from 
employers' liability and workmen's collective insur- 
ance in the United States, and figures from foreign 
countries were studied. The study of all of these, com- 
bined with a liberal measure of underwriting judg- 
ment, produced a result which was far from satis- 
factory. The first rates were pitched too high and 
successive reductions were made to bring them to a 
level which should be less burdensome to the insured, 



210 COMPENSATION INSURANCE 

while still providing adequate income for the in- 
surer. Adjustment of rates to industries and to par- 
ticular risks has been and still is a problem. Rates 
on certain classifications have proved grossly inade- 
quate and on others far too liberal to the insurer. 

The Importance of the Rate. — The quotation of 
proper rates is the most important and most perplex- 
ing problem which the insuring organization must 
meet. On the adequacy of rates in general depends 
the income of the insurer. They must be sufficiently 
productive in the aggregate to cover legitimate dis- 
bursements and build up a comfortable surplus — other- 
wise the organization is unsuccessful and sometimes 
insolvent. It is likewise important to the insured and 
to his employees that rates be adequate. If the in- 
surer, because of insufficient income, is unable to pay 
compensation in full, either the employer must make 
up the balance or the employee will be deprived of as- 
sistance to which he is entitled. Although the em- 
ployer is interested in keeping rates at a level which 
will enable the insurer to furnish ample security, it is 
to his disadvantage if they are set above that point, for 
such a condition would involve excessive insurance 
cost and undue profit for the insurer. 

Even though the general level of rates may be such 
as to produce an adequate but not unreasonable in- 
come for the insurer there may be injustice between 
classifications and between employers within the same 
classification. In the interests of justice each employer 
should contribute to the general fund an amount pro- 
portioned to the hazard of his particular plant. 

The Task of Rate-making. — Rate-making to meet 



MANUAL PREMIUM RATES 211 

these requirements calls for the cooperation of statis- 
ticians, actuaries, engineers, and (in decreasing em- 
phasis) underwriters. Statisticians collect and ar- 
range data of past experience; actuaries, with past ex- 
perience as a guide, construct new rates for the future ; 
engineers assist in measuring mechanical and struc- 
tural hazards ; while underwriters lend their judgment 
in the quotation of rates for which no accurate mathe- 
matical basis is available. 

Kinds of Rates. — This work results in three kinds 
of rates : the manual rate, applying to a given indus- 
try and state; the schedule rate, a modification of the 
manual rate to conform to visible conditions in a given 
plant ; and the experience rate, a modification of the 
manual rate based on the loss experience of a particu- 
lar risk. Schedule and experience rates are fre- 
quently referred to as "merit rates." 

MANUAL RATES 

Definition. — Manual rates are those rates which 
appear in the rate manual and which are supposed to 
represent the average insurance cost per one hundred 
dollars of yearly payroll for given classifications of 
industry. 

Use of Manual. — Suppose it is desired to find the 
rate for a plant located in Illinois and manufacturing 
wooden boxes from shooks supplied by another plant. 
Turning to page 65 of the manual it is found that the 
compensation rate symbol for "Box Mfg. — wood — 
assembling only" is CP. The actual rate is then 
found by reference to the Illinois table of values for 



212 COMPENSATION INSURANCE 

compensation rate symbols on which CP is assigned a 
value of $2.70. Assuming that the manufacturer 
owning this plant has an annual payroll of $100,000 
he would be required to pay a total premium of $2,700. 
If, however, his annual payroll were only $500 the 
premium charge would be $25, the amount of the 
minimum premium which the insurer will accept for 
compensation coverage. 1 

The Component Parts of a Manual Rate. — The 
manual rate is made up of three parts, expected loss 
cost, allowance for expenses, and profit. 

The accurate computation of loss cost presents great 
difficulties, for this item is made up of several subor- 
dinate items and varies not only between classifications 
but between states, and the hazards involved are as 
yet imperfectly known. Statistics of losses under 
compensation policies have been accumulating since 
191 1, but it is only recently that they have been sys- 
tematically and carefully collected. Even if there were 
complete and accurate statistics the changing nature 
of the hazard would present difficulties. The pay- 
ments which must be made under compensation poli- 
cies are dependent on the law under which they are 
made, on the interpretation of the law by an adminis- 
trative body, on methods of production, and on the 
intensity of industrial activity. Scientific considera- 

X A sample page from the manual is. reproduced on page 213, 
and the table of values for Illinois on page 214. Certain of 
the state funds issue rate manuals of their own but the type 
described here is used in writing the greater part of the business 
in the United States. The numerals 1 to 10 under the heading 
"M. P. — Comp." indicate minimum premiums varying from $10 
to $250. 



P.L. 


Teams 


M.P. 
Comp 


ZA 


R 


3 


ZA 


R 


3" 


Z 


R 


3 


Z 


R 


3 


ZA 


P 


3 


Z 


R 


3 



Classification No. Comp. 

Bolt and Nut Mfg. — excluding steel 
mfg.; excluding rolling mill 
operations 3132 CA 

Bone and Ivory Turning 4481 BH 

Bonnet Frame Mfg. — no wire mfg. 2533 AW 

Bookbinding 4307 AW 

Boot and Shoe Machinery Mfg .... 3558 BO 

Boot and Shoe Mfg 2660 BA 

Boot and Shoe Pattern Mfg. — (not 

available for division of payroll) . 2792 AW ZA 

Boot Blacking and Hat Cleaning 

Establishments 9585 BA 

Borax Mfg 4529 CO 

Bottle Dealers (second hand) 8212 CH 

Bottle Mfg. — no automatic blowing 
machines (not available for divi- 
sion of payroll) 4111 BE 

Bottle Mfg. — not otherwise classified 4114 BW 

Bottling — under pressure 2161 DB 

Bottling — not under pressure (not 

available for division of payroll) . . 2165 CG ZB PA 3 

Bowling Halls: 
*No alcoholic drinks served on the 

premises 9082 CG YF R 3 

*When alcoholic drinks are served 

on the premises 9083 CG YH R 3 

Box Mfg.— cigar 2766 CC ZA R 3 

Box Mfg. — folding paper boxes — no 

paper or paper board mfg 4241 CD ZB R 3 

Box Mfg. — solid paper boxes — no 

paper or paper board mfg 4240 CD ZB R 3 

Box Mfg. — wood — assembling only 2767 CP ZA R 3 

Box Mfg. — wood — mfg. shooks and 

assembling 2760 CZ ZC R 3 

Box Mfg. — wood (wire bound) — no 
box shooks mfg. (not available for 
division of payroll) 2765 CP ZA R 3 

* Additional charge for P. L. of $5.00 per alley. 

15 213 



YF 


R 


2 


ZA 


R 


5 


ZD 





5 


ZA 


R 


3 


ZA 


R 


3 


ZC 


PA 


3 



ILLINOIS. 

SYMBOLS FOR C">MP. RATES AND THEIR VALUES. 



AA 04 

A 06 

AC 08 

AD 09 

AE 11 

AF 13 

AG 14 

AH 16 

AJ 18 

AK 19 

AL 21 

AM 23 

A0 24 

AP 26 

AO 28 

AR 29 

AS 31 

AT 33 

AV 34 

AW 38 

AX 41 

AY 44 

AZ 47 

BA 51 

BB 54 

BC 57 

BD 61 

BE 64 

BF 67 

BG 71 



BH.. 74 

BJ '.77 

BK 81 

BL 84 

BM 87 

BO 91 

BP 94 

BQ 97 

BR 1.04 

BS 1.07 

BT 1.14 

BV 1.17 

BW 1.24 

BX 1.30 

BY 1.37 

BZ 1.44 

CA 1.50 

CB 1.57 

CC 1.64 

CD 1.70 

CE 1.80 

CF 1.87 

CG 1.97 

CH 2.04 

CJ 2.13 

CK 2.23 

CL 2.37 

CM 2.47 

CO 2.57 

CP 2.70 



CO 2.83 

CR 2.96 

CS 3.10 

CT 3.26 

CV 3.40 

CW 3.56 

CX 3.73 

CY 3.89 

CZ 4.09 

DA 4.29 

DB 4.49 

DC 4.69 

DD 4.92 

DE 5.16 

DF 5.39 

DG 5.65 

DH 5.92 

DJ 6.19 

DK 6.48 

DL 6.78 

DM 7.11 

DO 7.45 

DP 7.78 

DO 8.14 

DR 8.54 

DS 8.94 

DT 9.37 

DV 9.80 

DW 10.27 

DX 10.77 



DY 11.26 

DZ 11.79 

EA 12.36 

EB 12.92 

EC 13.52 

ED 14.19 

EE 14.85 

EF 15.55 

EG 16.28 

EH 17.04 

EJ 17.84 

EK 1&.70 

EL 19.56 

EM 20.49 

EO 21.46 

EP 22.49 

EO 23.55 

ER 24.64 

ES 25.81 

ET 27.03 

EV 28.33 

EW 29.66 

EX 31.05 

EY 32.51 

EZ 34.04 



214 



MANUAL PREMIUM RATES 215 

tion of all of these matters is well-nigh impossible. 
The computation of rates would be greatly simpli- 
fied if the contingency insured aga%st were some sin- 
gle definite, event such as the occurrence of death. The 
study of a compensation schedule, with its multitude of 
conditions, indicates some of the difficulties of predict- 
ing the payments necessary under a given law. Loss 
cost, on the basis of the compensation schedule, may 
be analyzed as follows: 

Medical aid. 

Payments to injured (periodical or lump sum) 

for dismemberments 

for disability of varying duration other than 
dismemberments 
Last sickness and burial benefits 
Payments to dependents (periodical or lump 

sum) 

based on number of dependents 

based on degree of dependency 

based merely on existence of dependents. 

When it is realized that, in addition to providing for 
this complicated set of payments, it is often necessary 
to quote rates without experience under the particu- 
lar act or, at best, with limited experience, the 
magnitude of the problem becomes increasingly evi- 
dent. 

The allowance for expenses and profit is more eas- 
ily determined and presents much less difficulty than 
does loss cost. 

Factors to be Considered in Computing Probable 



216 COMPENSATION INSURANCE 

Loss Cost. 2 — i. Pure Premium: .The pure premium 
is the loss cost indicated by past experience and is the 
most important of the factors upon which rests the 
probable future loss cost. Assuming the same com- 
pensation law, accurate records of past loss experience, 
similar surrounding conditions, and a wide exposure, 
this figure should vary but little from year to year. 
Since these assumptions do not hold in most cases, it 
can serve only as a basis for prediction and not as an 
actual measure of the future. 

A pure premium is expressed in terms of units of 
"one hundred dollars" of payroll. It is the amount that 
will be given to injured workmen or their dependents, by 
reason of accidents occurring during the period which 
the payroll covers, for each one hundred dollars of pay- 
roll expended during that period. For illustration : A 
yearly payroll is $1,000,000; minor accidents occur which 
will give $10,000 to the injured, and one serious accident 
occurs which will give $6,000. The total benefits to the 
workmen are $16,000, and the pure premium is $16,000 
divided by ($1,000,000 divided by $100) equals $1.60. 
Let us assume that the payroll for the next year is $800,- 
000, that the amount paid for minor accidents is $8,000, 
but that no serious accident occurs. The pure premium 
will be $8,000 divided by ($800,000 divided by $100) 
equals $1. 

This produces a drop in the pure premium for the 
second year, under the first, of ^Y^ P er cent. If we now 
add the payrolls and costs of the two years together we 

2 The discussion of these factors is based on "The Synthesis 
of Rates for Workmen's Compensation" by Claude E. Scatter- 
good. The reader is referred to this paper for a more extended 
treatment. 



MANUAL PREMIUM RATES 217 

get a payroll of $1,800,000; $18,000 for minor accidents, 
and $6,000 for serious accidents. The pure premium now 
becomes $24,000 divided by ($1,800,000 divided by $100) 
equals $1.33-!-. This is a closer approximation to what 
the average pure premium will be in the long run, than 
that of either year alone, because the exposure (payroll) 
is greater, and the exposure acts as a "flywheel," tending 
to keep the pure premium from varying. The larger 
the exposure the smaller the variation in pure premium. 3 

The following quotation shows the difficulty of se- 
curing dependable pure premiums from experience : 

The readiness to go by a small volume of experience 
is one of the peculiar errors of early underwriting in this 
country. When the Massachusetts Insurance Department 
compiled and published its famous schedule Z, for 19 13, 
showing the compensation experience for separate classifi- 
cations, it very wisely decided that below a certain mini- 
mum of exposure the experience was not worth present- 
ing. The accepted minimum was very small, only 
$500,000, and yet only 134 out of the possible 1,500 were 
able to pass that test. But such an exposure is hope- 
lessly inadequate to produce even an indication of an 
accurate rate. 

The average pure premium in Massachusetts was some 
36 cents. Let us assume that an ordinary fatal accident 
would cost $2,400. One fatal accident, therefore, in a 
certain classification represents a pure premium 
of 48 cents on half a million of exposure, 24 
cents on a million of exposure. One fatal accident, 
therefore, may double the pure premium in many a class. 

3 Scattergood, C. E., "The Synthesis of Rates for Workmen's 
Compensation," pp. 4-5. 



218 COMPENSATION INSURANCE 

The purely accidental fact that of two fatal accidents in 
two different classifications, one happened to a married 
employee, and another to an unattached bachelor, may 
produce a wide margin between the two costs and two 
premiums. Only then may we begin to speak of a de- 
pendable experience when at least one accident will not 
seriously disturb the average pure premium. If a cer- 
tain classification has a pure cost of $i, then an exposure 
of $10,000,000 may be sufficient, because one $2,000 or 
$3,000 loss will not affect the pure premium more than 
2 per. cent or 3 per cent. But in less hazardous occupa- 
tions, where the pure premium may be ten or twenty 
cents, a very much larger exposure will be necessary to 
produce results that are actuarially dependable. And if 
that is so, how long will it take some of the smaller states 
to accumulate such volume of experience? For instance: 
When will Nebraska be able to determine its pure pre- 
mium on ''suspenders without buckles," or Rhode Island 
on "butchers' supplies"? And yet rates must be quoted 
for either, and moreover they must be adequate and equi- 
table. 4 

To overcome this difficulty classifications whose 
hazards are considered analogous may be grouped and 
the experience of one state may be checked against the 
experience of another which presents similar under- 
lying conditions. But where judgment enters into the 
computation it cannot be expected that the pure pre- 
mium will be as accurate as where the exposure is wide 
enough to give a dependable average. 

2. Underestimate of Outstanding Losses : 

4 Rubinow, I. M., "Scientific Methods of Computing Compensa- 
tion Rates," pp. 12-13 



MANUAL PREMIUM RATES 219 

In compensation insurance, when a loss is incurred, it 
is not always paid for all at once, but the beneficiary be- 
comes entitled to a series of payments, occurring at regu- 
lar intervals, together with the cost of his medical and 
surgical attendance, for the period and limitation allowed 
by the compensation law. Loss experience as of a given 
date will consist of at least these four divisions : — 

(a) Accidents where the losses have been completely 
paid. 

(b) Accidents where the losses have been paid in part, 
where portions of the indemnities payable have not yet 
fallen due, and for which reserves must be maintained. 

(c) Accidents happening within the period of the pay- 
roll exposure which have not yet been reported or which 
will, but have not yet, developed into claims. 

(d) Accidents considered as completely disposed of, 
which will be reopened and additional indemnities 
paid. 

The pure premiums must contain not only the losses 
actually paid, but also the amounts which it is estimated 
will become payable on accidents occurring within the 
period considered. When it is considered that some of 
these payments continue throughout the lifetime of the 
beneficiary, some for life or until the remarriage of the 
beneficiary, others for a period of time provided the bene- 
ficiary survive the period, and others for a period of time 
whether the beneficiary survive or not ; and when the 
above conditions are modified by new beneficiaries being 
found to claim indemnities at the deaths of the original 
beneficiaries, it may be appreciated what a difficult prob- 
lem presents itself with regard to cases known to be out- 
standing losses. In addition to this, an allowance must 
be estimated for claims not known at the time of valua- 
tion of the pure premiums, but which should be included ; 



220 COMPENSATION INSURANCE 

and another estimate must be made as to claims, con- 
sidered settled, which will be reopened. 5 

It has been found in the past that attempts to esti- 
mate losses in addition to those already paid under 
a policy have resulted in large margins of error. Es- 
timates have proved inadequate to the final satisfac- 
tion of claims and it is generally agreed that present 
estimates probably err on the side of insufficiency. 
The error can be determined only approximately but 
careful rate-making would necessarily take it into ac- 
count. 

3. Increasing Cost of the Act : A priori reasoning 
seems to indicate that as workmen become more fa- 
miliar with the operation of workmen's compensation 
acts they will present more claims and the losses will 
become greater, even though the terms of the act re- 
main unchanged. 

Experience in foreign countries and in the United 
States bears out this conclusion and hence we might 
logically include in the probable future loss cost an 
amount to reflect this tendency. 

4. Effect of Merit Rating : Schedule and experi- 
ence rates may be applied to individual enterprises and 
the difference between the manual rate for the clas- 
sification and the individual rate is supposed to meas- 
ure the variation from the average hazard. Correctly 
applied this would result in increases and decreases 
which would balance each other so that the average 
rate for the classification would still be the manual 

5 Scattergood, C. E., op. cit., p. 8. 



MANUAL PREMIUM RATES 221 

rate — provided that improvements in conditions had 
not reduced the average hazard to a degree lower than 
that on the basis of which the manual rates were com- 
puted. Even granting this last possibility, the effect 
of merit rating in reducing average rates deserves rec- 
ognition so long as it continues. The New York Com- 
pensation Inspection Rating Board reported a reduc- 
tion of 15.5 per cent in premiums during the year 191 5 
as a result of this tendency. 6 

5. Catastrophe Hazard: The possibility of catas- 
trophes or of events which will involve the payment 
of extraordinarily large sums for losses resulting from 
a single accident or group of accidents demands spe- 
cial treatment, since catastrophes are of such infre- 
quent occurrence that they do not furnish data for 
compiling reliable average experience. Any allowance 
for this factor will necessarily be in the nature of an 
estimate. 

Factors Causing Variation in Loss Cost Between 
States. — 1. Laws: While all compensation acts are 
based on the same general principle, they are, as has 
been pointed out in preceding chapters, far from uni- 
form in their schedules of compensation and in their 
general provisions defining the conditions of liability. 
Further, a few acts expressly cover, or have been con- 

8 New York Journal of Commerce, January 14, 1916. A recent 
report (Nov. 23, 1916) of the Pennsylvania Compensation Rating 
and Inspection Bureau shows a net increase of .106% from orig- 
inal inspections for schedule rating and a net decrease of 4.73% 
from re-inspections. This decrease might well be justified by the 
general improvement induced by schedule rating. Reports on 
merit rating in New York under plans adopted during 1916 indi- 
cate a reduction of about four per cent from manual rates. 



222 COMPENSATION INSURANCE 

strued to cover, industrial disease. The insurance 
companies must take into account these differences, 
since the provisions of the acts are the principal deter- 
minant of loss cost, and any scientific scheme of rates 
will make allowance for this factor. 

2. Accident Frequency : The accident rate varies 
between states as well as between industries and plants, 
and will affect the loss cost since a greater number 
of accidents involves a greater probability of compen- 
sation claims and awards. 

The Expense and Profit Factors. — To be strictly 
accurate the amount allowed for expenses should vary 
between states and between classifications so that each 
group would have assigned to it the portion of the 
expenses of carrying on the business for which it is 
responsible. Likewise an ideally just scheme of rates 
would exact the same percentage of profit from each 
group, a percentage which would be only sufficient to 
induce the insurer to provide facilities for insurance 
and to increase steadily the efficiency of the insuring 
organization. 



CHAPTER XVIII 

MANUAL PREMIUM RATES (Continued) 

CALCULATION OF MANUAL RATES 

The Problem. — The accuracy of insurance rates de- 
pends on the exactness with which past experience can 
be ascertained and on the reliability of ascertained ex- 
perience as a guide to the future. Compensation rate- 
makers are handicapped alike by the difficulties of se- 
curing experience figures of value and by changing 
conditions which make these figures of less worth as a 
guide. When a new compensation act is passed in- 
surers are obliged to quote rates which of necessity 
are not based on the operation of the particular act; 
as older acts are amended rates are quoted without ex- 
act knowledge of the effect of the amendments. In- 
dustrial activity, the attitude of employer and em- 
ployee, types of machinery, methods for the applica- 
tion of power, and other conditions are in a constant 
state of flux and all have their effect on the losses 
under compensation policies. 

Even had compensation acts been in force over a 
long period in all states, each state would lack ade- 
quate experience in a large proportion of the fifteen 
hundred classifications of industry for which rates 
must be set, for no one state would have sufficient pay 
roll exposure to create dependable averages in all in- 
dustries. 

223 



224 COMPENSATION INSURANCE 

It is, however, the nature of the losses under com- 
pensation policies which does most to render rate- 
making a difficult problem. The complex schedule of 
payments of the various acts makes provision for com- 
pensation which may be continued for several years, in 
some cases even to the death of the recipient. All 
such payments are charged to losses under the policy 
which covered the risk at the time of the accident. 
Since the first policies were written in 191 1, and the 
large majority since then, it follows that a large por- 
tion of these charges for deferred losses must be in 
the nature of estimates, subject to the inevitable error 
which accompanies estimates. The tendency of the 
error in this case was considered on pages 218-220. 

The Machinery of Rate-making. — The efforts which 
are being made to solve the problem of securing cor- 
rect premium rates are commensurate with its com- 
plexities and difficulties. Individual insuring organi- 
zations have created statistical and actuarial depart- 
ments and are devoting much study to the subject. 
The stock insurance companies maintain the National 
Workmen's Compensation Service Bureau, an organi- 
zation the purposes of which are the gathering of sta- 
tistics of workmen's compensation insurance, the 
translating of these statistics into manual rates, and 
the development of systems of schedule and experience 
rating. This central bureau has branches in numerous 
states and its activities extend throughout the coun- 
try. Certain states 1 have created bureaus for the 
regulation of rates; manual, schedule, and experience; 

_ — — u 

1 California, New York, Massachusetts, and Pennsylvania. 



MANUAL PREMIUM RATES 225 

and the approval of rates by the insurance commis- 
sioner is required in several instances. Some states 
determine the rates for their state funds by legislative 
action, a method which tends to maladjustment. 2 

Cooperation is absolutely essential to justice in the 
making of rates and it is particularly desirable that 
such cooperation embrace all of the parties in interest. 
Even though much had been accomplished in the vari- 
ous bureaus, it was evident that greater uniformity 
and accuracy could be attained by a more comprehen- 
sive group and, at the suggestion of Insurance Com- 
missioner Hardison of Massachusetts, the Joint Con- 
ference on Workmen's Compensation Rates met in 
New York City during the last months of 191 5. At 
this conference two state rating bureaus were repre- 
sented by committees of their company members (both 
mutual and stock) ; the Workmen's Compensation 
Service Bureau by a company committee ; and five 
state insurance departments by official delegates. 3 
Committees were chosen to consider specialized 
branches of rate-making, and opinion from every angle 
was brought to bear on rate problems. It is to be 
hoped that such conferences may become a permanent 

2 This practice obtains in Montana, Nevada, Oregon, Washing- 
ton, and Wyoming. In Wyoming the law provides that each 
employer shall contribute two per cent of his annual pay roll to 
the Industrial Accident Fund. This disregard of relative hazards 
is symptomatic of the generally unscientific nature of the Wyom- 
ing act. 

3 The two state bureaus were those of Massachusetts and New 
York. The state departments represented were those of Califor- 
nia, Maryland, Massachusetts, New York and Pennsylvania. The 
Industrial Commission of Wisconsin was also represented. 



%26 COMPENSATION INSURANCE 

feature of compensation rate-making. The present 
rate manual owes much to the labors of this confer- 
ence. To quote from the special report of the New 
York State Insurance Department, "Taken as a whole, 
the work of the Conference is a long step forward in 
the application of scientific rating methods to the busi- 
ness of workmen's compensation insurance." 

METHOD OF CALCULATING MANUAL RATES 4 

The several factors which might properly be con- 
sidered by an insurer in the calculation of a rate have 
been described; where practically possible all factors 
applicable to a given rate should be considered. At 
present all of the factors mentioned in the preceding 
chapter have their influence in the calculation of rates 
except "underestimate of outstanding losses," "effect 
of merit rating," and "profit." The first of these fac- 
tors represents a tendency which may disappear with 
improved methods of computing reserves for unpaid 
losses ; the second, a tendency which more scientific 
rating will probably eliminate ; but the third should be 
considered, at least by the stock companies. It is ex- 
pected, of course, that rates as now calculated will 
yield a sufficiently liberal income to pay all losses and 
to leave a margin of profit, even though these three 
items are not specifically considered. 

The influence which the several factors exert on the 
rate are expressed by differentials and loadings. A 

4 The method here described is that used in the computation of 
rates for the major part of compensation insurance written in the 
United States. Departures from this method are in matters of 
detail rather than of principle. 



MANUAL PREMIUM RATES <W 

differential is unity plus or minus a percentage figure, 
the percentage figure being a variable which is to be 
applied to a basic quantity in order to make it repre- 
sentative of new conditions. For example, if it were 
determined that the risk of damage from fire in all 
classes of buildings in community "A" was fifty per 
cent greater than in community "B" and the rate 
of loss were known in a B" for each class, the rate 
for a particular class in "A" would be found by multi- 
plying the rate for the same class in "B" by the differ- 
ential, 1.50. A loading is a flat amount or a percent- 
age added to the expected annual loss cost to provide 
for contingencies, expenses, or profit. 

Basic Pure Premiums. — The first step in securing 
a manual rate is the determination of the basic pure 
premium; a quantity representative of the loss experi- 
ence under the original Massachusetts law, checked by 
statistics from other states where compensation has 
been in force for a considerable length of time and 
where the figures are reliable. This pure premium is 
used as a basis for calculating rates for all other states, 
since it is regarded as the most accurate expression 
of loss cost experience which it is possible to secure 
at this stage of development of the business. 

Law Differential. — Since the provisions of the laws 
governing compensation payments vary from one state 
to another it is necessary to modify the basic pure 
premium in order to determine what the probable loss 
experience would have been under the act of each 
state. The degree of modification is expressed by law 
differentials which measure variations between the 
schedules of compensation. 



228 COMPENSATION INSURANCE 

Law differentials are calculated by the application 
of the compensation schedule of the various acts to the 
Standard Table of Accident Gravity. The Standard 
Table 5 was constructed by Dr. I. M. Rubinow and 
was the result of a careful study of American and 
European statistics of accident gravity which seemed 
to show that the physical results of accidents aver- 
aged much the same everywhere ; that out of a very 
large number of accidents the same number would 
result in death, in dismemberments of various kinds, 
in total disability of one week, two weeks, three weeks, 
etc., and in partial disability of varying duration. On 
the basis of these statistics the table shows per 100,000 
accidents : 

1. Number of fatal cases. 

2. Number of dismemberments, distributed accord- 

ing to their nature. 

3. Number of cases of permanent total disability 

other than dismemberments. 

4. Number of cases of permanent partial disability 

other than dismemberments, distributed ac- 
cording to the percentage of disability. 

5. Number of cases of temporary disability, distrib- 

uted according to duration. 

Another table furnishes data of the number and de- 
gree of dependents in fatal cases. 

The probable cost of 100,000 accidents under a 
given compensation schedule may be found by comput- 
ing the payments which would be made on account of 
each group of deaths or disablements in the table, 

5 See p. 229. 



Standard Distribution of Accidents Table 

Fatal cases 

Dismemberments 

i. Loss of left arm 

2. Loss of right arm 

3. Loss of left hand 

4. Loss of right hand 

5. Loss of left thumb '. 

6. Loss of right thumb 

7. Loss of left index 

8. Loss of right index 

9. Loss of left middle finger 

10. Loss of right middle finger 

11. Loss of left ring finger 

12. Loss of right ring finger 

13. Loss of left little finger 

14. Loss of right little finger 

15. Loss of thumb and one or more fingers, left hand 

16. Loss of thumb and one or more fingers, right hand 

17. Loss of two or more fingers, left hand 

18. Loss of two or more fingers, right hand 

19. Loss of one phalange of left thumb 

20. Loss of one phalange of right thumb 

21. Loss of phalange of left index 

22. Loss of phalange of left middle finger 

23. Loss of phalange of right index 

24. Loss of phalange of right middle finger 

25. Loss of phalange of ring finger, left hand 

26. Loss of phalange of ring finger, right hand 

27. Loss of phalange of left little finger 

28. Loss of phalange of right little finger 

29. Loss of fingers accompanied by injuries of other fingers, left 

hand 

30. Loss of fingers accompanied by injuries of other fingers, right 

hand 

31. Loss of one leg 

32. Loss of both legs 

33. Loss of toes 

34. Loss of one eye 

35. Loss of one eye with injury to the other 

36. Loss of both eyes 

Permanent total disability other than dismemberments 

Permanent partial disability other than dismemberments 

Leading to Disability of 

1-10 Per Cent 

11-20 
21-30 
31-40 
41-50 
51-60 
61-70 
71-80 

Temporary disability 

Not over 1 week 37 

1- 2 weeks 
3 



64 
95 

50 
61 
29 
30 
59 
69 
26 
31 
14 
17 

. 32 
34 
14 
17 
63 
66 
55 
62 
83 
52 
93 

, 53 
25 
19 
18 
17 

172 

173 

129 

3 

57 

465 

62 

14 



672 

728 

378 

265 

179 

92 

92 

36 



932 
2,323 



no 

2,442 



94.193 



2- 

3- 4 

4- 5 

5- 6 

6- 7 

7- 8 

8- 9 
9-10 

io-n 
n-12 
12-13 
13-26 
Over 26 weeks. 



,225 
019 
,145 
,002 
452 
693 
.747 
178 
921 
586 
444 
355 
285 
927 
214 



Total 100,000 

(From A Standard Accident Table as a Basis for Compensation Rates, by I. M. 
Rubinow. — Spectator Co., New York, 1915). 

16 229 



230 COMPENSATION INSURANCE 

the result being expressed in terms of "week's wages," 
the usual unit of payment. To this is added the cost 
of medical and surgical services, also expressed in 
the form of "week's wages." The result is the total 
of compensation payments for the 100,000 acci- 
dents. 

A comparison of the computed totals for the origi- 
nal Massachusetts Schedule and for the schedules of 
other acts will give the probable relative cost of 100,- 
000 accidents. Suppose that it was found that 100,000 
accidents in Massachusetts would entail payments of 
500,000 "week's wages," while in Oklahoma the cost 
would be 600,000 "week's wages." Obviously the cost 
in Oklahoma is twenty per cent greater than in Mas- 
sachusetts and, other things being equal, the loss ex- 
perience of Massachusetts multiplied by 1.20 will give 
the loss experience in Oklahoma. This figure, 1.20, is 
the law differential for Oklahoma and is applied to 
the basic pure premium to secure a pure premium for 
Oklahoma. 6 

Accident Frequency. — This new pure premium is 
computed on the assumption that the rate of accidents 
is the same in all states as in Massachusetts. Al- 
though thoroughly reliable statistics of accident fre- 
quency are wanting, those which are available indi- 
cate the advisability of applying a differential to 
the pure premium in some states. If the accident 
frequency in a given state is ten per cent greater 
than in Massachusetts the differential would be 
1.1. 



6 The law differentials recommended to the 1917 conference are 
given on p. 231. 



Law Differentials 

California 1.66 

Wisconsin 1.60 

Michigan 1.04 

Minnesota 1.25 

Illinois 1.37 

Iowa 1. 12 

Nebraska 1.19 

Indiana 1.13 

Colorado 985 

Montana 1.01 

Ohio 1.70 

New Jersey v . .97 

Rhode Island 1.01 

Kentucky 1.44 

Vermont 87 

Connecticut 1.28 

Maryland 1.33 

Maine 1.02 

Pennsylvania 1.02 

Oklahoma 1.20 

Louisiana 1.13 

Kansas 94 

New York 1.89 

Massachusetts 1.57 



231 



232 COMPENSATION INSURANCE 

Increasing Cost of the Act. — This factor is recog- 
nized by a differential in every state except New Jer- 
sey, where the figures show a practically constant loss 
experience. 

Industrial Diseases. — By the use of English and 
American statistics and of a liberal amount of judg- 
ment it has been decided that one per cent of the pure 
premium should be added to all classifications to cover 
the cost of compensation on account of industrial 
diseases in states where they are covered by the 
law. 

A further charge is made in the form of an addition 
varying from one cent to twenty-two cents per one 
hundred dollars of payroll for classifications which 
present specific disease hazards — for example, dusty 
trades or industries where lead is used. 7 

Catastrophes. — There is no adequate information 
on which to base an exact catastrophe charge but on 
the basis of such experience as was available a load- 
ing of one cent per one hundred dollars of payroll 
was adopted for all states except New York, where 
the loading is two cents. The higher loading is justi- 
fied by the extremely liberal permanent disability and 
death benefits which are granted by the law of that 
state. 

Expense. — That portion of the report of the Com- 
mittee on Loadings and Differentials of the Joint Con- 
ference which dealt with the expense factor will best 

7 For an explanation of the methods and statistics used in 
arriving at this conclusion, see Maddrill, "The Compensation Cost 
of Occupational Disease." 



MANUAL PREMIUM RATES 233 

explain the method which has been adopted for in- 
cluding this item : 

In making provision for expense loading, the Com- 
mittee has deemed it to be its proper function to investi- 
gate the actual needs of the business as at present con- 
ducted, believing that any movement seeking to reduce 
expenses, however desirable, is an administrative ques- 
tion rather than an actuarial one. 

The Committee finds, after a careful study of the dis- 
bursements of representative companies, both as to their 
total workmen's compensation business and of such busi- 
ness as was reported to the states of New York, Massa- 
chusetts and Wisconsin, that the average expense ratio 
based upon the transactions of the calendar year 1914, 
has been approximately 40 per cent of the compensation 
premium income. An analysis of this ratio shows that 
it is made up of certain major divisions of expense as 
follows : 

Acquisition expense I 7-5% 

General administration expense 9.0 

Including : 

Payroll audits 2.0 

All other 7.0 

Service expenses 1 1.0 

Inspection and accident prevention 4.0 

Investigation and adjustment of claims. 7.0 

Taxes, licenses, etc .. .. 2.5 



Total 40.0% 



234 COMPENSATION INSURANCE 

The above grouping of expenses is presented by the 
Committee, in order to demonstrate that in considering 
the possibility of reducing the expense ratio, certain of 
the items such as ''Taxes, licenses, etc.," are not sus- 
ceptible to reduction by the companies, and that other 
items, such as "Service expenses," should not be reduced, 
if efficiency will be thereby impaired. It is evident, there- 
fore, that such reductions as may be effected, must be 
confined principally to "acquisition expenses" and "gen- 
eral administration expenses." 

The Committee finds further that the expenses natu- 
rally divide themselves into three general classes : 

(a) Such expense items as inspections and payroll 
audits do not vary with the gross premium rate, 
nor aie they incurred as a percentage thereof. 

(b) Acquisition expense and taxes are incurred as a 
percentage of the gross premium rate, and vary 
directly therewith. 

(c) Items such as expenses of administration and 
claim adjustment are properly chargeable in part 
in both of the foregoing ways. 

In order to give proper effect to these considerations, 
the Committee undertook to determine what differences 
in loading should be recognized in the calculation of 
rates for the various compensation states. It was found 
impracticable to give full effect to the wide differences 
which theoretical exactitude would demand. It was felt 
to be necessary, however, to recognize that a flat loading 
for all states is improper and inequitable and certain 
groupings were adopted for the purpose of producing 
reasonable and practical results. Accordingly the Com- 
mittee recommends the following scale of expense load- 
ings : 



MANUAL PREMIUM RATES 235 

For states having Percentage State 

a differential of loadings group 

Less than 1.25 A^/2% 1 

1.25 to 1.49 40% 2 

1.50 to 1.74 Z7V2% 3 

1.75 and over 35% 4 

These results were applied to the probable relative 
premium income for 19 16 and were found to reproduce 
approximately 40 per cent loading on the average. 8 

Typical Rate Calculation. — Suppose that it is de- 
sired to secure the rate in a given state for a classifi- 
cation whose basic pure premium is $1.00. Let us 
assume the following values for the various factors to 
be used : 

Law Differential 1.20 

Increasing Cost 1.10 

Accident Frequency 1.05 

Expense Loading 42^4% 

Catastrophe Loading 1^ 

The formula for securing the State Multiplier, i. e., 
the figure which, applied as a multiplier to the basic 
pure premium, will give the final manual rate for the 
given state, is as follows : 9 

8 Proceedings of the Joint Conference on Workmen's Compen- 
sation Rates, pp. 24-25. In one state, Pennsylvania, an expense 
loading graded according to the premium rate has been adopted. 

9 The method of introducing the expense factor may be ex- 
plained by the following example : 

x = the expense loading percentage 

y = amount to which the expense percentage is applied 

z = y — amount of the expense loading. 

z + xy = y 

z = y — xy 

z = y (1 - x) 
z 



236 COMPENSATION INSURANCE 

/ Law \ / Increasing \ / Accident \ 
Vj a ^. ,. ^Differential/ \ Cost Factor/ V Frequency Factor/ /CatastropheN 
Multiplier = i-(Expense -Loading) + ( Loading ) 

Substituting the assumed values : 

. . A , ,,- ,. ( l.2Q) (i.IO) (l.Q 5) . . 

State Multiplier = — + ic = 2.42 + 

1 - .42^ 

The state manual rate for a classification of which 
the basic pure premium is $1.00 would therefore be 

$2.42. 10 

Criticism of Present Methods of Calculation. — It is 
generally agreed that manual rates are not ideally ac- 
curate and that present methods of classifying indus- 
tries are not entirely just to all employers. It may 
be said, however, that, considering the youth of the 
business, its rapid growth, and the consequent neces- 
sity of constructing a system of rates to meet what 
was practically an emergency demand, the present 
rates are as accurate as could be expected. It is true 
that competitive practices have had their influence, but 
fortunately that influence is lessening. The ground- 
work has been laid for building a scheme of charges 
actuarially correct and a new branch of the actuarial 
profession has emerged which promises to place the de- 
mands of science above the older requirements of in- 
dividualistic skilled guess work. Only when these 
ends have been attained will an equitable system of 
rates exist. 

10 Since this chapter was written new factors have been in- 
troduced into the rate calculation to allow for the increased 
industrial activity and consequent increased accident rate brought 
about by war conditions and also for the effect of merit rat- 
ing, profit, and the loss record of the individual state. The 
basic method of procedure has not been changed. 



MANUAL PREMIUM RATES 237 

One general criticism may be applied to every fea- 
ture of the rate calculation — statistics have been used 
as general guides to judgment rather than as a direct 
indication of expected results. This has been done, 
not because such methods are considered ideal by rate- 
makers, but because of the paucity of statistics bearing 
directly on the questions which must be answered. 
Again, practical necessity has forced the general appli- 
cation of certain factors which should probably be 
varied to suit specific conditions. Loadings and dif- 
ferentials have been based on statistics from sources 
whose relation to the insurance of workmen's compen- 
sation in the United States has not always been direct, 
and the conclusions from these statistics have been 
applied in many cases to all states and to all industries 
alike. More accurate knowledge would result in mod- 
ification to suit particular states and particular indus- 
tries. 

The Future. — While the general principles embodied 
in the present method of rate calculation are funda- 
mental, it is probable that particular methods will 
sooner or later undergo considerable modification. 
These methods, adopted to meet an emergency, are 
necessarily but preliminary to working out a more 
equitable and dependable scheme. 

One of the first developments to be expected and 
desired is the use of the experience of each state as 
the basis for its own rates. Predicating rates for one 
state on experience in another is unsatisfactory, though 
necessary under the circumstances. No state will de- 
velop sufficient exposure in all classifications to serve 
as an adequate basis, and wherever the exposure is in- 



238 COMPENSATION INSURANCE 

sufficient rates will be based on the experience of other 
states, but each state should eventually furnish a reli- 
able experience in its principal classifications. 

The Standard Table is necessarily somewhat rough, 
based as it is on data from widely separated sources, 
and it will probably require adjustment to American 
conditions if it is to be of service in the future. It is 
probable also that separate tables should be computed 
for each industry or for each of several groups of 
industries if the demands of accuracy are to be sat- 
isfied. 

Eventually we may expect the factor of "increasing 
cost" to disappear, when the practice of workman's 
compensation becomes standardized, when adequate 
reserves are required, and when workmen become 
more thoroughly acquainted with its operation. 

In general, it may be said that time will bring con- 
stantly increasing knowledge of the problems of com- 
pensation insurance, that experiment will reveal the 
defects as well as the sound features of various meth- 
ods of procedure, that loss experience will develop 
a statistical basis for prediction. Accuracy in the 
computation of rates depends on these developments 
and should progress pari passu with them. 

REFERENCES 

Rubinow, I. M. "Scientific Methods of Computing Com- 
pensation Rates," Proceedings of the Casualty Actu- 
arial and Statistical Society of America. Vol. I, 
pp. 10-23. 

A Standard Accident Table as a Basis for Compen- 
sation Rates. Spectator Co., New York (1915). 
Originally published in Quarterly Publications of the 



MANUAL PREMIUM RATES 239 

American Statistical Association (March, 1915). 

Pp. 358-415. 
Mowbray, Albert H. "How Extensive a Payroll Expo- 
sure is Necessary to Give a Dependable Pure Pre- 
mium," Ibid., Vol. I, pp. 24-31. 
"The Determination of Pure Premiums for Minor 
Classifications on which the Experience Data is In- 
sufficient for Direct Estimate," Ibid., Vol. II, pp. 

124-133. 

Magoun, W. N. "The Essential Factors in the Compu- 
tation of the Cost of Workmen's Compensation," 
Ibid., Vol. I, pp. 173-189. 

Olifiers, Edward. "Statistics Necessary for Computing 
Net Compensation Rates," Ibid., Vol. II, pp. 202-207. 

Scattergood, C. E. "Cost Accounting in Casualty In- 
surance," Ibid., Vol. II, pp. 253-263. 

Maddrill, James D. "The Compensation Cost of Occu- 
pational Disease," Ibid., Vol. II, pp. 208-227. 

Downey, E. H. "The Classification of Industries for 
Workmen's Compensation Insurance," Ibid., Vol. II, 
PP. 10-32. 

Fisher, Arne. "Outline of a Method for Determining 
Basic Pure Premiums." Ibid, Vol. II, pp. 394-406. 

Scattergood, C. E. "The Synthesis of Rates for Work- 
men's Compensation," Economic World, Jan. 8, 1916. 

Report on Workmen's Compensation Insurance of The 
Commission to Investigate Practices and Rates in In- 
surance. Boston (1915). 

Report of the Joint Special Recess Committee on Work- 
men's Compensation Rates and Accident Prevention, 
Boston (1917). 

Proceedings of the Joint Conference on Workmen's Com- 
pensation Rates. Insurance Department, State of 
New York, Albany (1915). 



CHAPTER XIX 
MERIT RATING 1 

Since manual rates are average rates representing 
the average hazard of all plants in each classification 
of industry it is obvious that they do not necessarily 
reflect accurately the hazard of any particular plant. 
Conditions in some plants are superior to the normal 
for the industry while conditions in others are sub- 
normal. The application of the manual rate to all 
plants within a classification should produce an equita- 
ble contribution from the industry to the general in- 
surance fund but it would work injustice to the indi- 
vidual contributors. To measure comparative hazard 
within classifications and to distribute equitably the 
burden of premium payment among individual em- 
ployers, systems of merit rating have been adopted. 

A merit rate is a rate on an individual risk which 
reflects the deviation of hazard of the risk from the 
average hazard of risks in the same classification. If 
the hazard is less than the average a discount from 
the manual rate is allowed; if greater, an additional 
charge is made; while risks of average hazard take 
the manual rate. Thus each policyholder contributes 

1 Merit rating was used to some extent in setting rates for em- 
ployer's liability insurance, but it has been systematically devel- 
oped only in connection with compensation insurance. The pres- 
ent chapters therefore deal with practice in the latter field. 

240 



MERIT RATING 241 

to the general fund an amount based on the relative 
hazard of the industry in which he is engaged and on 
the relative hazard of his plant as compared with the 
plants of other policyholders conducting the same type 
of business. Relative hazard is a measure of the prob- 
able loss cost to the insuring organization and is, 
therefore, a proper basis for rating. 

Bases for Merit Rating. — Loss cost in compensa- 
tion insurance is dependent upon the frequency and 
gravity of industrial accidents and therefore merit rat- 
ing is based on a consideration of industrial conditions 
affecting the rate of accidents and their seriousness. 
The application of merit rating requires that these con- 
ditions in each plant be weighed in their relation to the 
probable loss cost of the average plant and the re- 
sult expressed in credits for superior, and in charges 
for inferior, conditions. Where conditions affecting 
accidents are capable of inspection this is accomplished 
through schedule rating. Where such underlying 
conditions are revealed only by the accident record of 
the plant experience rating is used. 

SCHEDULE RATING 

Definition. — Schedule rating is a method of deter- 
mining the rate of premium applicable to an individual 
plant by means of charges added to, and credits sub- 
tracted from, the manual rate ; these charges and cred- 
its to be ascertained by an inspection of the visible 
characteristics of the risk. 2 

2 This definition covers the method of schedule rating now in 
general use. Schedule rating might be applied by assuming a rate 



242 COMPENSATION INSURANCE 

The Schedule. — The first requirement of a system 
of schedule rating is a plan of operation. The plan 
now in general use is embodied in The Industrial Com- 
pensation Rating Schedule which was adopted by the 
First Conference on Schedule Rating on July 27, 19 16. 
This schedule is a compilation of standards of safety 
for industrial plants to be used as a guide for inspect- 
ing and rating such plants for workmen's compensa- 
tion insurance. A standard is set for practically every 
feature of a risk which affects the accident hazard 
and an appropriate modification of the manual rate 
is indicated for the presence or absence of standard 
conditions. Conformance to certain standards is rec- 
ognized as super-normal and involves a credit or re- 
duction of the rate, while lack of conformity to nor- 
mal standards is penalized by a charge. In a few 
cases provision is made for both credits and charges. 

The scope of the schedule is best indicated by its 
various sections: 

1. Buildings 

2. Fire Hazard 

3. Floors 

4. Floor Openings 

5. Wall Openings 

6. Hoist way 

7. Stairs 

8. Elevated Runways and Platforms 

for a perfect plant, adding charges for defects in actual plants ; 
or by assuming a rate for the poorest possible plant, giving cred- 
its for good points. The schedule used for rating coal mines 
is based on the assumption of a perfect mine. 



MERIT RATING 243 

9. Boilers — High Pressure 

10. Pressure Apparatus 

11. Steam Engines 

12. Electrical Equipment 

13. Explosive Hazard Charges 

14. Acid Carboys 

15. Travelling Crane 

16. Elevator 

17. Abrasive Wheel 

18. Power Transmission Equipment 

19. Welfare and Health 

20. Machine Hazard 

21. Machine — Employee Ratio 

22. Safety Organization, Inspection Service 

and Education 

23. Maintenance and Inspection 

24. First Aid and Hospital. 

Under each of these headings are grouped standards, 
rules, charges, and credits which enable the inspector 
and rater to arrive at proper modification of the man- 
ual rate for a given risk. 3 

Types of Hazard. — In the Industrial Schedule three 
types of hazard are recognized: (1) the catastrophe 
hazard, (2) the hazard incident to the operation of a 
plant and affecting all employees, and (3) the hazard 
incident to operation but to which only a limited num- 
ber of employees are exposed at any one time. 

Catastrophe hazards, such as boiler explosions, fires, 
collapse of buildings, etc., affect all plants and all in- 

3 A specimen page from the schedule is given on page 244. 



Schedule 



39 



19f Credit where those Pouring or 
Handling Molten Metal wear Leggings 
and Congress Type Shoes. 



Rule 

(1) 



CHARGES CREDITS 



Credit under this section shall apply only 
to classifications marked with an (L). 
(See table on last pages of schedule). * 



20. Machine Hazard 
20a Charge on premium equal to 
one-half i}/i) Manual rate for each Power 
Driven Machine not equipped with 
effective Starting and Stopping 
Device, not to exceed $2.00 per machine. 



Rule 



(1) 



(2) 



(3) 



This includes Abrasive wheels and non- 
productive machines except grindstones, 
blowers and continuously running pumps 
and compressors. 

This charge shall not apply to machines 
driven by belts one (1) inch or less in 
width or one-half (3^) inch or less in 
diameter. 



The total charge shall not exceed 5% of 
the premium based on Manual rate. 

(4) This charge shall not apply to individual 
machines in a group comprising one oper- 
ating unit so inter-related that the start- 
ing or stopping of any one machine will 
interfere with the operations or process. 
This rule finds special application in 
industries such as 

Grist Mills 

Malsters 

Stone Crushing 

Definition 

An effective Starting and Stopping De- 
vice is an individual Belt Shifter, Clutch 
or Switch which will effectively control 
the Machine. 

* See p. 247. 



X2 0I 
rate 



PL, 



1% 



244 



MERIT RATING 245 

dustries equally. 4 Charges for their presence or cred- 
its for their absence should therefore be the same for 
each unit of exposure and the schedule provides that 
flat amounts shall be added to or deducted from the 
manual rate. For example, there is a charge of one 
cent "where employees are in buildings more than one 
story in height not provided with fire fighting appli- 
ances" ; while an "effective automatic sprinkler system" 
gives a credit of one cent on the rate. 

The manual rate, applicable to the entire payroll and 
representing average hazard, is modified by a percent- 
age addition or reduction to make allowance for vari- 
ation from the average in particular plants wherever 
all employees are affected. For example, a charge of 
one per cent of the manual rate is required "where 
ventilation, . . . throughout the plant, is not suffi- 
cient to carry off all the dust or gases." Individual 
motor drive for all machines carries a credit of ten 
per cent. In this way charges and credits are pro- 
portioned to the size of the plant and to the hazard of 
the industry as reflected in the manual rate. 

Where only a limited number of employees can be 
exposed to a hazard at any one time the risk involved 
is confined to the probability of injury to the exposed 
employees. In a given plant this type of hazard is 
effective in proportion to the number oi points at which 

4 In this, and in following paragraphs, the assumptions on the 
basis of which the schedule was constructed are stated as facts 
in the interest of clarity. The qualifications should be made that 
these assumptions are mostly rough approximations, and that 
accuracy would demand a much more elaborate classification of 
charges and credits according to the type of plant under consid- 
eration. 

17 



246 COMPENSATION INSURANCE 

it occurs, the hazard at each point being the same for 
all plants. Hence charges and credits are expressed 
as a flat amount for each point at which the hazard 
is present and are applicable to the entire premium 
payment required for the plant. Examples are found 
in the charge of one dollar "for each set of tight and 
loose pulleys on power transmission not provided with 
a standard belt shifter"; and in the credit of two dol- 
lars for each circular saw "where point of operation 
is guarded according to standard." 

For most items of hazard specific charges or cred- 
its are listed and it is necessary only to turn to the 
proper page of the schedule to learn what modifica- 
tion is to be applied to the manual rate. A few 
items, however, are given special treatment, an ex- 
planation of which is necessary. Such are the ma- 
chine-employee ratio ; safety organization, inspection 
service, and education ; use of eye protectors, leg- 
gings, and respirators ; and maintenance and inspec- 
tion. 

Machine-employee Ratio. — The larger the number 
of machines per one hundred employees the greater is 
the probability of the occurrence of injury. For this 
reason a policyholder for whose plant the ratio of 
machines to employees is higher than the ratio for an 
average plant in the same industry is subject to an 
extra charge, and vice versa. 

A table gives the standard number of machines per 
one hundred employees engaged in "actual manufac- 
turing operations" or in work "strictly incidental'' 
thereto. 5 
See p. 247. 



Key: E = Eye Protector 
L = Leggings 
R = Respirators 
M = Maintenance and 
Inspection of Chains, 
Hooks and Ropes 



CLASSIFICATION 



Machine — per 
employee ratio 

Number of 
machines per 
100 employees 



R 



E 





R 




E 


M 




E 


M 




E 


M 




E 


M 

M 




E 


L 


M 


E 


L 


M 


E 






M 


E 


L 


R 






M 


E 




M 


E 


L 



Absorbent Cotton Mfg 

Acetic Acid Mfg 

Acetylene Gas Machine Mfg 69 

Acetylene Gas Tank Charging Station. 

Acid Mfg. (N.O.C.) 

Adding Machine Mfg 71 

Advertising Novelties Mfg. (not ex- 
clusively wood, metal or celluloid) ... 66 

Advertising Signs Mfg. (celluloid) 

Advertising Signs Mfg. (glass) 46 

Advertising Signs Mfg. (metal) 46 

Aerated Water Mfg 

Aeroplane Mfg. (shop only) 

Agate and Enamel Ware Mfg 40 

Agricultural Machinery Mfg 

Road or Street Making Mch. Mfg. . 
Threshing or Husking Mch. Mfg ... 82 
Traction Engine or Power Plow Mfg . 82 

Wagon Mfg 85 

Machine Shop (no foundry) 

Foundries (iron) * 

Foundries (malleable iron) 

Woodworking 

Agricultural Tools Mfg. (hand tools) . . 100 

Alcohol Mfg 

Aluminum Smelting 

Aluminum Ware Mfg. (from sheet al- 
uminum) 100 

Ammonia Mfg 

Analytical Chemists (in shop) 

Anchor Mfg 

Aniline and Alizarine Mfg 

Arms Mfg. (heavy ordnance, not 
charging shells) 



247 



MS COMPENSATION INSURANCE 

Percentage charges and credits, not to exceed seven 
and one-half per cent of the rate in either case, are 
worked out according to the following formulae : ' 6 



sy 2 



/Standard minus Actual \ 

I — I — i = % of rate credit. 

y Standard J 



sy 2 



/Actual minus Standard \ 

I I — i = % of rate charge. 

\ Standard / 

Suppose that a plant manufacturing agate and 
enamel ware has thirty machines per one hundred em • 
ployees, or ten less than the standard for that indus- 
try. The credit for this plant would be computed as 
follows : 



8^ I I — i = 1.12 



/ 40 — 30 \ 
V 40 / 



A credit of one and twelve one-hundredths per cent 
would be applied to the manual rate for this item. 

Safety Organisation, Inspection Service^ and Edu- 
cation. — For the application of the credits provided 
under this heading (there are no charges) plants are 
divided into five classes, according to the number of 
employees. 7 Standards of organization, inspection, 

8 In plants of less than ten employees this charge or credit does 
not apply. 
7 Class A, 1 to 50 employees inclusive. 

Class B, 51 to 150 employees inclusive. 

Class C, 151 to 500 employees inclusive. 

Class D, 501 to 1000 employees inclusive. 

Class E, over 1000. 



MERIT RATING 249 

and education are prescribed for each class and a 
credit of five, four, and one per cent respectively, al- 
lowed. The higher the class, the more elaborate the 
standards set. If a plant does not measure up to the 
required standard in all three of these features a 
smaller credit may be allowed for those activities 
which are properly cared for. 

Use of Eye Protectors, etc.; Maintenance and In- 
spection. — The use of eye protectors, leggings, and res- 
pirators for protection of the employee's person, and 
inspections of chains, hooks, and ropes, are particu- 
larly important in certain industries and credit will be 
allowed for compliance with prescribed standards for 
those industries only. Classifications in which such 
credit may be given are indicated in a table which ac- 
companies the schedule. 8 

Formula Rating. — A few classifications covering 
the manufacture of metal goods in which stamping 
presses are used are subject to formula rating exclu- 
sively. A formula has been worked out in terms of 
manual rates, machine workers, total employees, 
stamping press hazard, and total number of working 
machines which, when applied, will give the final rate 
reflecting the conditions present in a plant. Rating 
experts are not entirely agreed on the validity o£ 
the method and a complete explanation of its applica- 
tion is not warranted by the scope of the present 
volume. 

Application of the Schedule. — All manufacturing 
risks are subject to schedule rating provided the most 
accurate estimate of payroll available yields a premium 

5 See p.' 247. 



250 COMPENSATION INSURANCE 

of fifty dollars or over. The payroll of executive offi- 
cers, clerical office force, and salesmen is not con- 
sidered, as the manual rate applicable to them is not 
subject to modification. 

In certain states where state rating bureaus exist, 
the schedule is applied by these organizations and 
the results placed at the service of the insurers. In 
other states individual insurers apply the schedule or 
act through the National Workmen's Compensation 
Service Bureau, a stock company organization, which 
maintains subsidiary bureaus in a large number of 
states. 

The manual classification to which a plant belongs 
having been determined, the first step in the applica- 
tion of the schedule is the inspection of the plant. The 
inspector is provided with a report blank in which all 
information necessary for rating must be entered. 
Headings and items in this report form correspond 
to those found in the schedule. 

From the inspector the report goes to a rating clerk 
who computes the charges and credits for each item 
and applies the result to the manual rate. Total 
charges and total credits are finally expressed in terms 
of dollars added to, or subtracted from, the manual 
rate and the modified rate resulting from these opera- 
tions becomes the rate applicable to the risk. Suppose 
that the total credits amount to $.089, while the total 
charges are $.05, the manual rate being $.20. The net 
credit is $.039 which, when applied to the manual rate 
gives a modified rate of $.i6i. 9 

As very few charges or credits are expressed in 

"A specimen rating sheet is reproduced on p. 251. 



MERIT RATING 



251 



terms of "dollars on rate" it is necessary to convert 
other expressions into these terms. A five per cent 
modification of a manual rate of one dollar becomes 

The Industrial Compensation Inspecting and Rating Schedule. 



RATING SHEET 

Employer — IolmsQiL.Clo_i&ing_Iafg^~.acL». 

Location: 

Street »Dd Nfflnb«r....l3..Colla3:.^7fi^. Town.JBaltimQrfl State....Ud.. 



„ He No.. 
Date of 

... Surrey... 



JUledbj 

Date . . 


CHARGES 


ITEM 








CREDITS 


Cheeked by 

Date . 


PERCENT 
OF RATE 


DOLLARS 
ON RATE 


DOLLARS 


No. 


bUHLUULt 


PER CENT 
OF RATE 


ON RATE 


OOLLARS 
PREMIUM 








9.00 


1 


Bui 


din 




























2 


Fire Hazard 





.02 















i r on 


3 




















o 




4 























2,pn 


5 

















o 





2.50 


6 

























7 


Stairs 





















.60 


8 


Elevated Runways 























9 







,02 
















10 


Pressure Apparatus 























11 























12 

























13 


























14 
























15 






















3. on 


16 
















o 







17 























4 T oo 


18 




5.63 




















198 




JL^QO_ 




















19b 


Light 


3.00 




















19c 

















o 








19d 

























19e 

























19f 


Leggings and Shoes 






















20 


Machine Hazard 








4.20 














21 


Machine Ratio( .36 ) 


3.75 





















22 


Safety Organization In- ) 
spection and Education S ' ' 


5.00 


















o 


23 


Maintenance and Inspec'n. . 














o 








24 




1.00 










Total 






22.60 




TOTALS 


19_»5£ 


.04 


4.20 


Total 


,05 " 






.05 




TOTALS EXPRESSED AS 
DOLLARS ON RATE . . . 


.039 


-04, 


.01 


11 .utry 

.05 




% 2 


5 


* .05 


CHARGE 


Physical 


CREDIT 


$,069 


% 


K4 




.039 




% 


$ 


CHARGE 


Moral 


CREDIT 


$.018 


% 


9 




% 


$ 


CHARGE 


Experience 


CREDIT 


$ 


% 






% 25 


$ .op 


CHARGE 


TOTAL 


CREDIT 


$.0A9 


% 


A4 . 






% 


$ 


CHARGE 


NET TOTAL 


CREDIT 


$.039 


% 


19 























CLASSIFICATION 

.C.lo.thing..Mfg^_ 



Average Rate $ 



Payroll Man. Rate Premium Adj. Ret* 

_ $...44 T ~040....$ — ,20 $ S--.-16-1- 

_$ $ _ $ _..$ 

$__ _ $...„ _ $ . $ . 

_$_^ $ - $ ~ ...-S. 

Total $ Total S 



five cents. A ten dollar charge or credit on the en- 
tire premium paid for a risk involving a ten-thousand 
dollar payroll becomes a ten cent change on the man- 



252 COMPENSATION INSURANCE 

ual rate, which is applied to each one hundred dollars 
of payroll. 

Conclusion. — The necessity of schedule rating is 
unquestioned. Not only is justice promoted by re- 
quiring employers to contribute insurance premiums 
in proportion to the hazard of their plants, but a direct 
and stimulating reward is offered for accident pre- 
vention. The charges and credits now used are, how- 
ever, estimates, and as such probably contain large 
elements of error which must be corrected as com- 
pensation insurance develops and as statistics accumu- 
late with which the judgment of raters may be checked. 
The present schedule was the work of a conference of 
the ablest men in the field and their continued efforts 
should secure a schedule which is not only accurate 
but demonstrably so. Particularly the tendency to pro- 
duce an overplus of credits in practical application 
should be corrected in so far as it does not represent 
an actual average improvement of hazard, 10 and the 
schedule should be elaborated to include a considera- 
tion of the relative importance of each item of hazard 
in different industries and in different types of plant. 

10 V. supra. Page 221, footnote. 



CHAPTER XX 

MERIT RATING (Continued) 
EXPERIENCE RATING 

Definition. — Experience rating is a method of de- 
termining the rate applicable to a given risk by modi- 
fying the manual rate, the loss ratio of the risk being 
used as a basis for the modification. If the rate de- 
duced by this method applies to the period during 
which the experience has developed it is called retro- 
spective; if it applies to a succeeding period it is called 
prospective. 

Purpose. — The justification of experience rating, if 
it is to be found, must rest on its contribution to sci- 
entifically accurate measurement of risk. Those who 
support this method of rating argue that there are 
intangible elements in the operation and administra- 
tion of every plant which schedule rating cannot meas- 
ure because they are not revealed by inspection; that 
their existence is evidenced by the varying loss ra- 
tios of plants of apparently the same physical hazard; 
and that the proper measure of their effect on the 
hazard is to be found in the loss record of the individ- 
ual risk. 1 This is felt to be particularly true of con- 
tracting, public service, and miscellaneous risks which 

1 These intangible elements are referred to as the moral hazard 
or the morale of the plant. 

253 



254 COMPENSATION INSURANCE 

are not subject to schedule rating and which offer their 
loss record as the only evidence on which to base merit 
rates. Advocacy of experience rating has not always 
been unmixed with a desire to use it for competitive 
advantage in the quotation of rates and, therefore, 
proposals for its adoption are often viewed with sus- 
picion as well as criticism by its opponents. There is, 
however, undoubtedly a large weight of expert opinion 
which favors experience rating, but among its pro- 
ponents there are wide differences of opinion on spe- 
cific schemes for its application. 

Requirements for a Scientific Plan of Experience 
Rating. — Admitting the validity of the general princi- 
ple, certain requirements of a scientific plan of experi- 
ence rating may be indicated as generally agreed upon : 

1. Experience rating should be applied only to risks 
large enough to furnish a loss record indicative of 
''hazard deviation" as distinguished from "chance de- 
viation," 2 i. e., there should be a sufficiently large ex- 
posure to produce averages of a certain degree of de- 
pendability. Whether size of risk should be measured 
by amount of premium alone or by both premium and 
payroll is a matter of dispute. 

2. Maximum limits should be set on debits and cred- 
its so that the application of the plan will not result in 
a serious depletion of income for the insurance carrier 
or in so heavy a drain on the insured that he will in 
fact be denied the protection for which he has paid 
a premium. 

2 For the terms quoted the author is indebted to Mr. Joseph 
H. Woodward's paper on "The Experience Rating of Workmen's 
Compensation Risks." 



MERIT RATING 255 

3. The maximum charge or credit permitted should 
vary with the size of the risk, the larger the risk the 
higher the maximum. 

4. The plan should be compulsory for all risks com- 
ing within its terms in order to avoid discrimination 
and competitive sharp practice. 

5. The plan should be administered by an impartial 
body to protect the interests of all parties. 

The New York Plan. — The plan adopted by the 
Compensation Inspection Rating Board of New York 
to take effect June 30, 191 6, embodies all of these 
requirements and may be said to represent the major- 
ity, although not the unanimous, opinion of the ad- 
vocates of experience rating. 

Under this plan all risks which show a completed 
period of insurance under the New York act of two 
years or over are subject to experience rating pro- 
vided they have produced an earned premium of at 
least $500 for the two years and, in the case of manu- 
facturing risks, have a payroll exposure of at least 
$100,000. For contracting and public service risks the 
minimum payroll is $50,000. The past experience 
of such risks, ascertained by the calculation of loss ra- 
tios, "serves as a basis for determining the modifi- 
cation in rates to be applied for the renewal effective 
June 30th, 1916, or thereafter." The plan is, there- 
fore, prospective. 

Calculation of Loss Ratio. — The total losses of each 
risk are computed by adding the medical cost to the 
claim cost for the experience period. Medical cost is 
found by multiplying the total number of notices of 
injury by twelve dollars, the assumed average cost per 



256 COMPENSATION INSURANCE 

notice. To ascertain claim cost use is made of a table 
of values for compensable accidents. For dismember- 
ment cases the statute provides for payment of com- 
pensation to be made for seven and one-half to three 
hundred and twelve weeks, depending upon the na- 
ture of the dismemberment. Their cost will be deter- 
mined by multiplying the statutory number of weeks 
in each case by two-thirds of the injured man's wages, 
to be not less than five, nor more than fifteen dollars, 
the compensation payment provided by the act. For 
fatal accidents, total permanent disability cases, and 
all other compensable accidents, average periods of 
duration of three hundred and twenty-four, six hun- 
dred and twenty-four, and eight weeks, respectively, 
have been assumed. In each case the average num- 
ber of weeks is multiplied by the compensation payable 
each week as above. 

Having determined the claim cost and the medical 
cost, and having added them together, the total cost 
is divided by the total payroll exposure for the risk 
to determine the loss per hundred dollars of payroll 
or the pure premium for the risk. 

The pure premium is then divided by the manual 
rate (or average rate if the risk is assigned to more 
than one classification) to determine the loss ratio. 
(The average rate is determined by multiplying the 
total payrolls for the experience period for each clas- 
sification involved, by the present manual rate for the 
classification, thus determining a theoretical premium ; 
the sum of the theoretical premiums is then divided by 
the total payroll to determine the average rate.) 

Suppose, for example, that the experience of a given 



MERIT RATING 257 

risk for which the total payroll is $175,000, the aver- 
age rate $0,571, and the earned premium $1,000, 
shows these results : 

Medical Cost $ 72 

Claim Cost 278 

Total Losses $35° 

Dividing the total losses by the total payroll : 

$350 -7*- 175,000 = .2% = $.20 per $100.00 of payroll. 

. With an average or manual rate of .571 per $100 
of payroll, this represents a loss ratio of thirty-five 
per cent. 

Neutral Zone. — Risks which show a loss ratio of 
forty to sixty-five per cent inclusive are not entitled 
to a modification of the manual rate. Within this 
"neutral zone" deviations from the average are not 
considered. 

Maximum Debits and Credits. — As risks increase 
in size their loss experience becomes more reliable as 
an index of hazard. Accordingly the maximum allow- 
able debits and credits are increased. 

For risks with earned premium of $500, the maxi- 
mum debit or credit is 5 per cent. For risks with earned 
premium of $5,000 the maximum debit or credit is 20 per 
cent. Between these two points the maximum debits or 
credits are graded proportionately. 

To determine the maximum debit or credit for risks 
producing an earned premium of more than five hun- 
dred dollars and less than five thousand dollars the 
following formula is used : 



258 COMPENSATION INSURANCE 

P — 500 

5 + = MC or MD 

300 

P = Earned premium 
MC = Maximum credit 
MD = ^Maximum debit 

In the case assumed above : 3 

1000 — 500 

5 + = 6 2/3 

300 

Six and two-thirds per cent is the maximum credit for 
a risk with an earned premium of a thousand dol- 
lars. 

Computation of Actual Debits and Credits. — 
For loss ratio equal to 40 per cent, no credit is allowed. 
For loss ratio equal to zero, maximum credit is allowed. 
Between these two points the credits are graded pro- 
portionately. For loss ratio equal to 65 per cent no debit 
will be imposed. For loss ratio equal to 100 per cent 
maximum debit will be imposed. Between these points 
the debits are graded proportionately. 

Formulae are provided for determining the percent- 
age of debit or credit applicable to a risk, as follows : 

/ LR \ 

I Unity — I X MC = percentage of credit 

\ 40 / 



40 

LR- 65 
100 — 65 



X MD =. percentage of debit 

LR = Loss ratio 
MC = Maximum credit 
MD = Maximum debit 



Pp. 256-257. 



MERIT RATING 259 

Thus a risk producing an earned premium of one 
thousand dollars with a loss ratio of thirty-five per 
cent would be entitled to five-sixths of one per cent 
credit, while the same risk with a loss ratio of eighty 
per cent would be debited two and six-sevenths per 
cent of the manual rate. 4 

Schedule Rated Risks. — If a risk is subject to both 
schedule rating and experience rating the modifications 
indicated by the two methods are added algebraically 
and the result applied to the manual rate, with the limi- 
tation that "no reduction shall exceed forty per cent 
of the manual rates." Suppose, for example, that the 
application of the schedule results in a charge of 
twenty per cent, while experience rating indicates a 
credit of ten per cent. The net charge is ten per cent. 

Application of the Plan. — The Compensation In- 
spection Rating Board, composed of the State Insur- 
ance Fund and stock and mutual companies writing 
compensation insurance in the state of New York, ad- 
ministers the plan under the supervision of the state in- 
surance department. The experience of each risk sub- 
ject to experience rating is submitted to the Board, 
which calculates the modification, if any, to which it is 
entitled. The modified rate is then promulgated to all 
members of the Board and stands as the officially au- 
thorized rate for the risk in question. 

Other Plans. — Three other experience rating plans 

35 5 

i X 6 2/3 — — (per cent credit) 

40 6 

80 - 65 

X 6 2/3 = 2 6/7 (p_er cent debit) 

100 — 65 



260 COMPENSATION INSURANCE 

are in operation : the "Service Bureau plan," the "Mas- 
sachusetts plan," and the "Ohio plan." The first of 
these, administered by the National Workmen's Com- 
pensation Service Bureau, is practically the same as 
the New York plan and was put into effect in thirteen 
states on November i, 191 6. The Massachusetts plan 
provides for a neutral zone of from forty-five to sixty- 
five per cent, with a charge of one per cent for each 
per cent of excess in loss ratio over sixty-five per cent, 
and a credit of two-thirds of one per cent for each per 
cent below forty-five. The maximum debit or credit 
allowed is thirty per cent. Risks with a payroll ex- 
posure of twenty-five thousand dollars for an experi- 
ence period of not over five years are subject to com- 
pulsory rating under the plan. The Ohio plan pro- 
vides a system of debits for all risks, except contract- 
ing risks, to which a system of credits is applicable. 
"The method of applying the experience is based part- 
ly upon the number of compensatable accidents, partly 
on their cost, partly on their gravity, and partly on the 
base rate for the classification." "The Ohio system 
appears in general to be unnecessarily complex. . . . 
It would not be practicable for use in states where 
compensation insurance is written competitively." 5 
All of these plans are prospective. 

Proposed Plans. — Two proposals for experience 
rating which have not been adopted deserve especial 
mention. The first was devised by Mr. David S. 
Beyer of the Massachusetts Employees Insurance As- 
sociation and is based wholly on the number of com- 

5 Woodward, Joseph H., "The Experience Rating of Work- 
men's Compensation Risks," pp. 358-9. 



MERIT RATING 261 

pensable accidents occurring in a plant during the ex- 
perience period. Employers who have a record better 
than the average receive a credit, while those whose 
plants show a higher rate are debited. Mr. Beyer con- 
tends that it is largely a matter of chance whether an 
accident results in serious disability and that the wages 
of injured men bear no relation to relative safety con- 
ditions. The cost of compensation for a plant is there- 
fore not an accurate index of morale, and the fre- 
quency of compensable accidents is offered as a sub- 
stitute. 

The second of these proposed plans was developed 
by the Statistical and Actuarial Committee of the 
Pennsylvania Compensation Rating and Inspection 
Bureau and is particularly notable as providing for a 
retrospective plan in which the total charges and cred- 
its for the state are balanced. It requires the cal- 
culation of a loss ratio for the entire compensation 
business of the state for each year. This loss ratio 
is to be treated as a normal on which to base charges 
and credits. The loss ratio of each individual risk is 
then to be calculated and a charge of one per cent 
levied for each per cent that the individual loss ratio 
exceeds the normal. The charges are to be collected' 
as a part of the adjusted premium for the experience 
period and are to be distributed to employers whose 
loss ratios are below normal, participation being meas- 
ured by amount of premium and variation of loss ratio 
from normal. This plan came before the Bureau in 
December, 191 6, but was not adopted. 

Summary of Arguments Pro and Con. — As experi- 
ence rating is still a subject of controversy it may be 
18 



262 COMPENSATION INSURANCE 

well to enumerate the arguments for and against its 
use in compensation insurance. In its favor : 

1. By offering a reward for low loss ratios accident 
prevention is stimulated. 

2. It is necessary to a complete measurement of 
risk as it is the only means of reaching the intangible 
"moral hazard." 

3. It is the only method for applying merit rating 
to risks not subject to schedule rating. 

4. The experience of a large individual risk is a 
proper index of its own safety conditions. 

Contra : 

1. Experience rating is a denial of the principles 
of insurance which call for the combination of a large 
number of risks in order to obtain dependable aver- 
ages. 

2. It has been used as a competitive device and is 
still open to competitive abuses. 

3. It will work injustice to the employee because 
the employer will suppress notices of injury and at- 
tempt to reduce compensation payments in order to 
keep his loss record as low as possible. 

4. Small risks, which are excluded from the oper- 
ation of the plan, are thus discriminated against. 

CONCLUSION 

Merit rating is still in its developmental stages. It 
lacks the statistical backing which time will bring, and 
in the meantime recourse must be had to expert judg- 
ment. Available figures indicate that merit rating is 
resulting in a much smaller net reduction of the man- 



MERIT RATING 263 

ual rate than formerly, but little has been done toward 
justifying particular charges and credits. Future 
changes may be expected to take the form of more ac- 
curate and specialized charges and credits based on 
actual experience figures. 

REFERENCES 

Hansen, Carl M. "Development, Application and Ef- 
fect of Schedule Rating in Liability and Compensa- 
tion Insurance," Proceedings of The Casualty Actu- 
arial and Statistical Society of America. Vol. I, 
pp. 21J-226. 

Whitney, A. W. "Notes on the Theory of Schedule 
Rating," Ibid., Vol. I, pp. 250-256. 

Forbes, Charles S. "Schedule Rating by Formula," 
Ibid., Vol. II, pp. 33-38. 

Greene, W. W. "Should the Compensation Premium 
Reflect the Experience of the Individual Risk?" 
Ibid., Vol. II, pp. 347-355- 

Woodward, Joseph H. "The Experience Rating of 
Workmen's Compensation Risks," Ibid., Vol. II, pp. 

356-369- 

Mowbray, Albert H. "Scheduled Experience Rating," 
Ibid., Vol III, pp. 14-25. 

Beyer, David S. " 'Experience' or 'Morale' Rating in 
Workmen's Compensation Insurance," Economic 
World (Apr. 15, 1916). 

Ryan, H. E. "The Experience Rating Plan of the Ohio 
State Insurance Fund for Workmen's Compensa- 
tion," Ibid. (Oct. 7, 1916). 

Gaty, Theo. E., Brief on Experience Rating submitted 
to the New York State Insurance Department. Pub- 
lished in lournal of Commerce and Commercial Bul- 
letin (Feb. 21, 1916). 



264 COMPENSATION INSURANCE 

Senior, Leon S. "The Effect of Schedule and Experi- 
ence Rating on Workmen's Compensation Risks in 
New York," Proceedings of The Casualty Actuarial 
and Statistical Society of America. Vol. I, pp. 
227-240. 

Downey, E. H. "Some Principles of Compensation 
Merit Rating," Ibid., Vol. Ill, pp. 26-42. 

"Discussion," Ibid., Vol. Ill, pp. 54-75. 

Wilson, Herbert M. "Inspection and Schedule Rating 
for Coal Mine Insurance," Ibid., Vol. II, pp. 39-48. 



CHAPTER XXI 

RESERVES 

A sum of money set aside by an insurance organiza- 
tion for certain definite purposes is called a reserve. 
Insurers issuing liability or compensation policies are 
required by law to maintain an unearned premium re- 
serve and a loss reserve. 1 

UNEARNED PREMIUM RESERVE 

Liability and compensation policies are written in 
practically all cases for a one year term, the premium 
for the year being collected in advance. The pre- 
mium is not earned, however, until the policyholder 
has been afforded protection for the entire year. At 
any given time the insurer has earned that proportion 
of the premium represented by the ratio of the time 
during which the policy has been in force to the total 
period for which the policy is written. If a policy is 
written on the first of January for a term of one year, 
one-twelfth of the premium will be earned on Febru- 
ary first. 

The unearned portion of the premium constitutes 
the unearned premium reserve and is regarded as the 

1 Certain insurers are also required to keep a catastrophe re- 
serve, as explained in Chapter XXII. 

265 



266 



COMPENSATION INSURANCE 



property of the policyholder, held in trust by the in- 
surance carrier. Accordingly the law requires that 
unearned premiums shall be charged as a liability in 
the annual statement. To be exact, the amount of this 
reserve should be calculated for each individual policy 
to cover its unexpired term. But this procedure would 
necessitate so much work that a simpler method has 
been adopted. 

Method of Calculation. — An approximate unearned 
premium reserve may be calculated by assuming that, 
at the end of a given month, policies written during 
that month will have been in force, on the average, 
a half-month; that policies written during the preced- 
ing month will have been in force one and one-half 
months, and so on. Under this plan, on one-year poli- 
cies written during December, the insurer will have 
earned one-twenty-fourth of the premium on Decem- 
ber thirty-first, three-twenty-fourths on January thir- 
ty-first, and so on until, on the following November 
thirtieth, twenty-three twenty-fourths will have been 
earned. The corresponding unearned premium re- 
serves for each of these three dates would be twenty- 
three twenty-fourths, twenty-one twenty- fourths, and 
one twenty-fourth of the gross premium. The fol- 
lowing table shows the reserve for each month of the 
policy term : 

Earned and Unearned Premium at the End of Each Month During the 
Term of a One- Year Policy 





ist 


2nd 


3rd 


4th 


5th 


6th 


7th 


8th 


9th 


10th 


nth 


1 2th 




V24 


3 /24 


5 /24 


7 /24 


9 /24 


U /24 


13 /24 


l 5 /24 


"/24 


l 9 /24 


ai/ 24 


23 /24 




23/ 24 


21 /24 


19 /24 


' 7 /24 


15 /24 


13 /24 


11/24 


9 /21 


7/24 


5 /24 


3 /24 


V24 



RESERVES 267 

If the volume of premiums on business written by 
the insurer is constant from day to day the application 
of this method will give an accurate unearned pre- 
mium reserve. If business is increasing the reserve 
will be too small, since the premium volume of the 
second half of the month will be greater than that of 
the first half and the amount actually earned will be 
less than one twenty- fourth of the yearly premium. 
Conversely, if business is decreasing in volume the un- 
earned premium reserve will be too large. However, 
the calculation of accurate unearned premium reserves 
is not sufficiently important to warrant the necessary 
extra labor, as substantial accuracy is attained under 
the present method. 

The state insurance departments accept a reserve 
computed on a yearly basis, the assumption being made 
that, at the time of calculating the reserve, all policies 
written for a term of one year or less have been in 
force, on the average, a length of time equal to one- 
half their term. It is evident that reserves calculated 
on this basis approximate accuracy much less closely 
than those calculated on a monthly basis, unless pre- 
mium income is uniform throughout the year. 

LOSS RESERVES 

Definition and Purpose. — The loss reserve is "that 
sum which, with incidental accretions from interest, 
is sufficient to mature every outstanding obligation, 
known or unknown, on account of all accidents or 
other events which may lead to an insurance loss, 
which have happened prior to the date as of which 



268 COMPENSATION INSURANCE 

the reserve is being computed." 2 A reserve of this 
sort is essential in liability and compensation insurance 
since the obligation of satisfying all claims and of 
meeting all expenses on account of accidents occurring 
during the policy period is assumed in the contract. 
Such claims and expenses may require disbursements 
for many years after expiration of the policy term. 
Liability cases may be appealed several times, and 
compensation laws provide for benefits continuing for 
long periods. Claims are sometimes made a consider- 
able time after the occurrence of accidents and awards 
of administrative bodies are occasionally readjusted 
on the presentation of new evidence. 

Ability to meet all obligations, present and future, 
out of income legitimately applicable to them is a test 
of solvency. The premium payments made during 
a particular year are supposed to cover all losses aris- 
ing from accidents occurring during that year. Hence 
an insurance organization should be able, after paying 
current losses and expenses, to set aside a sufficient 
sum out of the year's premiums to mature all outstand- 
ing obligations arising from the year's accidents. The 
only other income which should be applied to this 
purpose is interest on the sum set aside. 

This test is applied to insurance carriers by the in- 
surance departments of the several states under the 
terms of statutes which prescribe methods of calcu- 
lating loss reserves and which require the maintenance 
of the prescribed reserves as a condition of solvency. 

Desiderata. — Adequacy is the prime essential of a 

2 Woodward, Joseph H. "Workmen's Compensation Reserves," 
p. 112. 



RESERVES 269 

loss reserve, accuracy an important but secondary 
consideration. The efforts of insurance officials have 
been directed toward the development of a method 
which would, without question, produce reserves suffi- 
cient to meet outstanding obligations. A deficit works 
hardship on the carrier, which must meet its obliga- 
tions from other sources; on policyholders, whose 
claims may not be met or who must contribute exces- 
sive premiums to balance insufficient reserves; and on 
workmen, who may be unable to collect compensation 
due them. 

While adequate reserves are necessary, redundant 
reserves are undesirable, for, reserves being drawn 
from premiums, an excess over actual needs requires 
an unjustly high premium charge. This excess will 
go to swell the dividends of stockholders or, in a mu- 
tual company, of a group of policyholders of dif- 
ferent composition from the group which contributed 
the premiums. By unduly increasing the charge for 
insurance scientific conclusions and accurate rating are 
made difficult. 3 An ideal reserve is one just suffi- 
cient to accomplish its purpose of maturing every out- 
standing obligation. 

Difficulties. — This ideal is peculiarly difficult of at- 
tainment in the insurance of employers' liability and 
workmen's compensation. Rapidly changing condi- 
tions vitiate the significance of accumulated statistics 
even where such statistics have been kept. Particu- 
larly, the change from employers' liability to work- 

3 An insurer with a large surplus may continue to charge low 
rates by' taking a part of its reserve funds from surplus. This 
places the smaller and younger companies at a disadvantage. 



270 COMPENSATION INSURANCE 

men's compensation has brought about new conditions 
to which the older statistics are not applicable, though 
reserves for these two forms of business were not sep- 
arated in statements to insurance departments until 
January I, 191 4. Even now reserves for all types of 
liability business are combined in one statement. 

If statistics relating to policies on which practically 
all obligations have matured are used, they are of lit- 
tle value because of their age, while statistics taken 
from experience under recent policies involve a large 
element of estimate for obligations not yet matured, 
and a cumulative error is introduced in making these 
estimates the basis of further estimates. Because of 
these facts accurate reserves cannot, at present, be 
calculated; the best that can be done is to attempt to 
make them adequate without unreasonably high re- 
quirements. 

Methods of Calculation. — Any method which may 
be used for calculating loss reserves must ultimately 
be based on past experience, even though changed con- 
ditions may require a large measure of judgment in 
adapting such experience to present needs. Four bases 
have been proposed for the calculation of loss reserves ; 
(1) individual estimates, (2) pure premiums, (3) av- 
erage cost of notices of injury, of claims, and of suits, 
and (4) loss ratios. 

1. Individual estimates: Under this plan there 
would be reserved an amount for each policy which 
the circumstances of the particular case seemed to 
make necessary. It has the advantage of permitting 
the consideration of each case on its own merits but 
leaves opportunity for errors of judgment and fur- 



rp:serves 271 

nishes no general standard of adequacy or of accuracy. 
It also imposes a burden of work in estimating the 
probable cost of each separate notice of injury, claim, 
or suit which makes it somewhat impractical. 

2. Pure premiums : Pure premiums, accurately de- 
termined, represent the losses which an insurer has to 
meet. If it is known how much has been expended 
under a particular policy, that amount subtracted from 
the pure premium should give the reserve for losses 
to be experienced in the future. The difficulty with 
the application of this method is that pure premiums 
are not necessarily accurate and that payments of 
losses and loss expenses may be excessive. An ade- 
quate reserve must be prospective, valued on the ba- 
sis of future payments, rather than retrospective, val- 
ued on the basis of what is left after past payments 
have been made. 

3. Average costs of notices of injury, claims, and 
suits : This rather awkwardly designated method has 
as its basis the average cost of settlement for all no- 
tices of injury, claims, and suits. These average 
costs are determined from experience. The reserve at 
time of valuation is found by multiplying the number 
of notices, claims, and suits by their respective aver- 
age costs. From the sum of these results are sub- 
tracted the amounts already paid in losses and loss 
expenses. The method is simple of application but re- 
sults under it were unsatisfactory, as it gave oppor- 
tunity for the suppression of notices of injury and 
as the average costs varied greatly in different locali- 
ties, under different classes of liability business, and 
under different employers. 



272 COMPENSATION INSURANCE 

4. Loss ratios : Loss ratios fixed by statute, deter- 
mined from the experience of individual insurers, or 
determined from the combined experience of all in- 
surers may be used as a basis for reserves. Under 
this scheme the loss ratio to be used is applied to the 
gross premium to obtain the probable amount applica- 
ble to losses and loss expenses. From this amount pay- 
ments already made are deducted and the remainder 
constitutes the required reserve. The principal objec- 
tion to the plan is that the reserve is based on the 
gross premium, a quantity dependent on the action of 
the insurer and not necessarily representative of the 
probability of loss. This objection has less force 
where rates are regulated by law. Other objections to 
the method will appear in the discussion of the pres- 
ent law. Its principal merits are that it is easy of ap- 
plication, that it has given better practical results than 
the average cost method, and that it is easily checked 
by supervising authorities. 

Present Law. — The law which now governs the re- 
serves for liability and compensation insurance in New 
York, Massachusetts, Ohio, 'Minnesota, Washington, 
and other states, was first enacted in 191 1 in seven 
states and represented, at that time, the consensus of 
opinion of insurance officials. 4 It provides for a 
combination of the loss ratio, average cost, and indi- 



4 A reserve law enforced in several important states covers 
business written in other states as well, since a company, to do 
business in a state, must value the reserves for its entire busi- 
ness in accordance with the requirements of that state. The law 
to be described operates as a minimum-requirement for the major 
part of the liability and compensation insurance business. 



RESERVES 273 

vidual estimate methods. The loss ratio, which is ap- 
plied to policies written during the last five years be- 
fore calculation of the reserve, is that experienced by 
the individual insurer during the first five years of the 
ten-year period immediately preceding calculation. It 
may not, however, be less than fifty-five per cent. This 
loss ratio is applied to the earned premiums of each 
of the last five years to determine the total probable 
losses. From the result are subtracted losses and loss 
expenses already paid and the remainder is the legal 
reserve. 

The reserve thus ascertained for the first three of 
the last five years is subject to a suit test. 

The suit test consists in taking the sum of the follow- 
ing items for each of these three years: the number of 
pending suits multiplied by $750, the amount necessary 
to extinguish pending death claims under workmen's com- 
pensation policies, and the present value of disability 
claims pending under workmen's compensation policies, 
and comparing this sum with the reserve determined by 
using the loss ratio. Whichever amount is the greater 
is to be used as the reserve. 5 

The reserve for the last two years is determined by the 
loss ratio alone. 6 

5 Law, Frank E., A Review of Liability and Workmen's Com- 
pensation Loss Reserve Legislation, p. 18. 

6 In Pennsylvania a loss ratio of 55 per cent is fixed by statute 
for both liability and compensation business, while in California 
a loss ratio of 75 per cent is fixed for compensation business. 
Under rulings of the state insurance departments the fixed loss 
ratio of 55 per cent is now used in other states. The fixed loss 
ratio is also applied to all companies which have been in business 
less than ten years. 



274 COMPENSATION INSURANCE 

The reserve for policies written more than five years 
before the date of valuation of the reserve is indicated 
under a, b, c, and d of the following list of items, the 
sum of all of which constitutes the reserve required by 
law to be held by companies writing liability and com- 
pensation insurance: 

(a) For all suits pending under policies written 
more than ten years prior to the date of making 
the statement, except suits under workmen's 
compensation policies, $1,000 for each suit. 

(b) For all suits pending under policies written 
more than five years and less than ten years 
prior to the date of making the statement, ex- 
cept under workmen's compensation policies, 
$750 for each suit. 

(c) For all death claims pending under workmen's 
compensation policies written more than five 
years prior to the date of making the state- 
ment, the amount necessary to extinguish such 
death claims. 

(d) For all disability claims pending under work- 
men's compensation policies written more than 
five years prior to the date of making the 
statement, the present value of such claims. 

(e) For the policies written in the first three years 
of the five-year period preceding the date of 
making the statement, the reserve determined 
for each year separately by the method of loss 
ratios or by the suit test, so-called, whichever 
is the larger, as explained above. 

(f) For the policies written in the last two years of 
the five-year period preceding the date of mak- 
ing the statement, the reserve determined for 



RESERVES 275 

each year separately by the method of loss 
ratios, as explained above. 7 

Defects of the Present Law. — i. It is generally 
agreed that the present method of calculation produces 
inadequate reserves. Competition forces carriers to 
maintain reserves at the minimum prescribed by the 
law and this has resulted in a serious situation among 
the weaker companies. 

2. Experience five years old at the time of valuation 
of reserves is a poor index to conditions at the later 
date. Changes in laws and in other matters affecting 
loss payments are not felt promptly enough. 

3. Liability experience is no sufficient indication of 
probable experience under compensation policies. The 
two kinds of business are fundamentally different and 
there is no reason for expecting that their loss ratios 
will be the same. 

4. The amount of the reserve for the last two 
years is dependent on the action of the insurance com- 
pany in fixing premium rates and may not be sufficient. 
This defect is less important where rates are regulated 
by the state. • 

5. The amounts provided to cover costs of outstand- 
ing suits and the loss ratios prescribed have proved 
inadequate. 

Proposed Law. — These defects have led to the pro- 
posal of a new law by the National Convention of In- 
surance Commissioners which will probably be enacted 
in several states during the 19 17 sessions of their leg- 

7 Law, Frank E., op. cit., p. 19. This method of calculating 
reserves is graphically presented on p. 276. 



Suits pending X $1000 



5yrs 



Suits pending X $750 



lOgrs. 



3grs. 



Loss ratio method 
with suit test 



2yrs. 

_L_ 



Loss ratio method 



Date of valuation 

Liability Reserves. 



Amount necessary to extinguish 
death claims ¥■ present 
value of disability claims 



3yrs. 



5yrs. 



Loss ratio method with 
suit or claim value test 



2yrs. 



Loss ratio method 



Date of valuation 
Workmen's Compensation Reserves 



276 



RESERVES 277 

islatures. 8 The proposed method differs in principle 
from the older law in requiring that reserves be cal- 
culated on the basis of fixed loss ratios of sixty per 
cent for liability policies, and of sixty-five per cent for 
compensation policies. However, in calculating the re- 
serve for compensation claims sixty per cent and sixty- 
two and one-half per cent will be used on December 
31, 1917, and December 31, 1918, respectively, the 
sixty-five per cent ratio going into effect on December 
31, 1 91 9. These loss ratios are to be applied to the 
last three years preceding the date of statement, sub- 
ject to the requirement that, for the first of these three 
years, the reserve shall be not less than seven hundred 
and fifty dollars for each outstanding liability suit 
and "not less than the present value at four per centum 
interest of the determined and the estimated unpaid 
compensation claims." 

Reserves provided for policies written in other pe- 
riods are as follows : 

For all liability suits being defended under policies 
written more than 

(a) Ten years prior to the date as of which the 
statement is made, one thousand five hundred 
dollars for each suit. 

(b) Five and less than ten years prior to the date 
as of which the statement is made, one thou- 
sand dollars for each suit. 

(c) Three and less than five years prior to the 
date as of which the statement is made, eight 
hundred and fifty dollars for each suit. 

8 Massachusetts has adopted this proposal in an act approved 
Feb. 19, 1917. 
19 



278 COMPENSATION INSURANCE 

For all compensation claims under policies written 
more than three years prior to the date as of which the 
statement is made, the present values at four per centum 
interest of the determined and the estimated future pay- 
ments. 

Other Methods Used. — Other methods are in use 
in some cases by state funds and compensation mu- 
tuals which differ from that outlined above principally 
in the extent to which losses are individually estimated, 
or which employ the method of estimated "average 
costs'* for computing the reserve on the later years of 
issue. Such methods are theoretically sound as they 
proportion the reserve directly to the probability of 
future payments of loss. The chief objection to them 
is found in the difficulty of supervision, as their ac- 
curacy could not be checked by a state insurance de- 
partment without an examination of each company's 
records. Certain states still apply the average cost 
method to both liability and compensation business 
but the more progressive insurance states have adopted 
the method outlined above. 

REFERENCES 

Law, Frank E. A Review of Liability and Workmen's 
Compensation Loss Reserve Legislation, Fidelity 
and Casualty Company, New York (1913). 

Reports of the Committee on Reserves other than Life, 
Proceedings of the National Convention of Insur- 
ance Commissioners. 

Dawson, M. M. "Workmen's Compensation Claim Re- 
serves," Proceedings of the Casualty Actuarial and 
Statistical Society of America. Vol. I, pp. 90-1 11. 



RESERVES 279 

Woodward, Joseph H. "Workmen's Compensation Re- 
serves," Ibid., Vol. I, pp. 1 12-130. 

Flynn, B. D. "A Method Proposed for the Calculation 
of Liability and Workmen's Compensation Claim Re- 
serves," Ibid., Vol. I, pp. 131-140. 

Rubinow, I. M. "Liability Loss Reserves," Ibid., Vol. I, 
pp. 279-290. 

Fondiller, Richard. "Office Practice in the Valuation 
of Compensation Losses," Ibid., Vol. II, 427-446. 



CHAPTER XXII 

T NSURANCE OF THE CATASTROPHE HAZARD 1 

In insurance, as in other forms of business enter- 
prise, an excess of disbursements over income is fatal 
to success, and security against the consequences of 
events which abnormally increase disbursements is a 
matter of primary interest to insurers and to policy- 
holders. The largest and most variable item in the 
disbursements of an insuring organization is that at- 
tributable to "losses," payments on account of the oc- 
currence of events against which insurance has been 
granted. Premiums, which are supposed to provide 
resources to meet loss payments, are calculated on the 
basis of the theory that past losses furnish an approxi- 
mately accurate guide to the future. Hence an abnor- 
mal excess of actual losses over expected might bring 
about such an increase of disbursements as to lead to 
embarrassment or insolvency for the insurer and to in- 
adequate protection for the insured. 

Any event which causes a loss sufficiently great to 
embarrass an insuring organization and to endanger 
the security which it offers to policyholders is known 

1 The greater part of this chapter is a reprint of an article by 
the author on the same subject, which was published in the 
Annals of the American Academy of Political and Social Science, 
Vol. LXX, March, 1917. 

280 



INSURANCE OF CATASTROPHE HAZARD 281 

as a catastrophe. The point at which losses resulting 
from a single event become sufficiently large to classify 
the event as a catastrophe varies between insurers ; the 
larger the income account, the larger the loss which 
can be experienced without serious disturbance. It 
varies also in the minds of insurance officials; the 
more conservative the management, the lower the 
point. Wherever the point may be, adequate protec- 
tion of the policyholder demands that the insurer take 
measures to secure itself against such catastrophe 
losses. 

Susceptibility to catastrophe varies greatly between 
different classes of risks and is dependent upon the 
probability of a single event causing a serious loss. A 
single mine accident may cause deaths and injuries 
which entail abnormally large payments under a com- 
pensation law; an equivalent accident could not occur 
to the widely scattered drivers of a taxicab company. 
The employees of a factory operated by steam power 
are subject to an explosion hazard which does not ex- 
ist in an electrically operated plant. 

Further, the catastrophe hazard bears no necessary 
relation to the average losses on a given class of risks. 
One class may show a heavy loss experience due to a 
large number of individual losses, no one of which 
is unusually serious. In another, losses may occur 
only occasionally, but each loss may be extremely 
heavy, approaching or reaching the point which places 
it in the catastrophe group. 

No one form of security against the catastrophe 
hazard has become standardized, each insurer adopt- 
ing whichever of the available agencies seems best or 



282 COMPENSATION INSURANCE 

most expedient — its decision resting on considerations 
of the size and character of its business and its under- 
writing practices. Three general methods are in ac- 
tive use; refusal to assume risks involving a catastro- 
phe hazard, accumulation of reserve funds from which 
extraordinary losses may be paid, and shifting catas- 
trophe risks to other insurers through reinsurance. 

Limits. — The simplest and most obvious method of 
dealing with the catastrophe hazard is to avoid it al- 
together by refusing to accept liability for losses be- 
yond a certain amount on a given risk or group of 
risks. Employer's liability insurance is written with 
standard limits of $5,000 and $10,000; the $5,000 
limit applying to liability for the injury of any one 
man, and the $10,000 limit applying to liability for 
injuries arising out of any one accident. 2 

Examples of this type of practice could be cited 
from practically every form of insurance. It is the 
individualistic method of meeting the problem, each 
insurer assuming whatever risk it can safely carry and 
leaving the remainder to be placed with other insurers 
or retained by the policyholder. Its application forces 
large concentrated interests to seek their insurance 
from several insurers and increases the complexities 
attendant on a settlement of loss. 

Accumulation of Catastrophe Reserves. — Every in- 
surance organization maintains a surplus from which, 
if necessary, unusual demands may be met. Even 
with careful attention to the limitation of risk there is 

2 An increase in these limits involves the payment of additional 
premium, the amount of which is partially determined by the 
susceptibility of the risk to the catastrophe hazard. 



INSURANCE OF CATASTROPHE HAZARD 283 

a possibility of unusually heavy losses due to general 
conditions, and occasionally risks which underwriters 
have considered as "separate and distinct" may be 
shown to be connected in an unforeseen manner. 
Proper management requires a fund which will pro- 
vide financial reinforcements with which to meet such 
losses. 

Some organizations assume risks which are known 
to involve a catastrophe hazard on the theory that, 
while a catastrophe loss may embarrass them if it must 
be met from a single year's income, they will be able 
to meet such losses successfully if spread over a term 
of years. These insurers accumulate a "catastrophe 
reserve" by setting aside an appropriate amount. De- 
pletion of the reserve to meet extraordinary losses is 
corrected by new accumulations in following years. 
The state workmen's compensation funds are required 
by law to maintain such reserves which, with one ex- 
ception, are their sole immediate resource for meeting 
catastrophe losses. For example, in New York ten 
per cent of the premiums received by the fund is to be 
set aside until a total of $100,000 is reached, after 
which five per cent is to be set aside until the fund is 
large enough to cover the catastrophe hazard. 

Reinsurance. — Reinsurance is the latest and most 
favored method of dealing with the catastrophe haz- 
ard. The practice of limiting risks is objectionable to 
policyholders who prefer to place as much insurance 
as possible with one company, provided it offers ample 
security ; and also to insurers who desire to offer cov- 
erage for large risks and thereby increase the attrac- 
tiveness of their agency contracts. The practice of re- 



284 COMPENSATION INSURANCE 

insuring with other companies that portion of a risk 
which involves a catastrophe hazard enables a single 
company to assume large "lines" and, at the same 
time, offer security to its policyholders. Each rein- 
surer limits the risk which it will assume in order that 
its own stability may not be threatened and requires 
the original insurer to retain a certain part of the risk 
to promote careful selection. 

Reinsurances may be effected by the submission of 
individual risks to the reinsurer for acceptance or by 
means of a general contract under the terms of which 
the reinsurer automatically assumes a stated amount 
on each risk at the moment that the risk is written by 
the original insurer. Reinsurers are divided into two 
broad classes ; independent reinsurers, whose relation 
to the reinsured is purely one of contract for indem- 
nity, and mutual reinsurance organizations of which 
the reinsured are members. 

Workmen's Compensation. — It is usually required 
by law that the amounts payable to injured employees 
under a workmen's compensation policy shall be lim- 
ited only by the provisions of the compensation act. 
An insurer can apply the principle of limits only by 
refusing to accept undesirable risks. If a risk is ac- 
cepted it carries with it the catastrophe hazard incident 
to its classification. Reinsurance is, therefore, pe- 
culiarly necessary in this branch of the business in 
which the reinsurer, in return for a percentage of total 
premiums, assumes liability for all losses in excess of 
a specified amount arising out of any one accident. 

A considerable amount of this business is handled 
by London Lloyds and by the larger insurance com- 



INSURANCE OF CATASTROPHE HAZARD 285 

parries, but the mutual principle has been applied in 
at least two organizations ; the Workmen's Compensa- 
tion Reinsurance Bureau, and the Mutual Corpora- 
tions' Reinsurance Fund. The Bureau is maintained 
by fifteen stock companies which pay into a general 
fund five per cent of premiums received on account of 
risks in the state of New York and two and one- 
half per cent of premiums from other states. With 
the exception of losses on certain prohibited extra- 
hazardous classifications, the Bureau assumes liability 
for losses due to a single accident in excess of $25,000. 
Members participate in any surplus above the require- 
ments of the fund and are liable for assessments in 
case of a deficit. For accounting purposes the Bureau 
divides its business into two groups according to the 
percentage of premiums paid, each group being finan- 
cially distinct. Dividend payments are subject to the 
requirement that a fund of $250,000 be accumulated 
and maintained for each group. 

The Mutual Fund is operated on a somewhat sim- 
ilar plan. Its membership includes nine mutual com- 
panies in New York State. Contributions of five per 
cent of total premiums are made to the fund and each 
company is liable, if necessary, for an additional as- 
sessment of five per cent of premiums collected during 
the year preceding a catastrophe loss. Losses in ex- 
cess of $25,000 but not exceeding $100,000 are paid 
from the fund. The risk in excess of $100,000 is 
usually shifted to other reinsurers. 

Akin to these organizations is "The Associated 
Companies" a combination of ten stock companies ex- 
clusively for the writing of mining risks, which in- 



286 COMPENSATION INSURANCE 

volve a high degree of catastrophe hazard. All pre- 
miums and losses are divided among the companies 
equally, the ordinary as well as the catastrophe risks 
being distributed. 

Reinsurance extends the principle of insurance from 
the distribution of losses of individuals to the distri- 
bution of losses of insurers. Systematic cooperation 
of this sort enables insurance organizations, by pro- 
tecting themselves, to offer greater security to their 
policyholders. 



APPENDICES 



APPENDIX A 

The New York Workmen's Compensation Law 
(With Notes of the State Industrial Commission) 

[Chapter 816 of the Laws of 1913, as reenacted and 
amended by chapter 41 of the Laws of 1914, and as 
amended up to January 1, 19 17, constituting chapter 67 
of the Consolidated Lazvs. The constitutionality of 
this Workmen's Compensation Law has been upheld in 
Jensen v. Southern Pacific Co., 215 N. Y. 514 ; Burns v. 
Southern Pacific Co., 215 N. Y. 120; and Walker v. 
Clyde Steamship Co., 215 N. Y. 529. These cases have 
been appealed to the Supreme Court of the United 
States. They have been argued there and await deci- 
sion. An older, voluntary plan of workmen s compen- 
sation is embodied in Labor Law, §§ 204-212, still upon 
the statute books. The Workmen s Compensation Lazv 
should be constructed broadly and liberally: Matter of 
Petrie, 21$ N. Y. 335; Costello v. Taylor, 217 N. Y. 
179; Winheld v. N. Y. C. & H. R. R. Co., 168 App. 
Div. 351, 216 N. Y. 284 ; Moore v. Lehigh Valley R. R. 
Co., 169 App. Div. 177; 217 N. Y. 2J ■; Rheinwald v. 
Builders' Br-ick & Supply Co., 168 App. Div. 425 ; Mc- 
Queeney v. Sutphen & Myer, i6j App. Div. 528.] 

Article 1. Short title, application, definitions (§§ 1-3). 

2. Compensation (§§ 10-34). 

3. Security for compensation (§§ 50-54). 

4. State workmen's compensation commission 

(§§ 60-77). 

289 



290 COMPENSATION INSURANCE 

5. State insurance fund (§§ 90-106). 

6. Miscellaneous provisions (§§ 110-119). 

7. Laws repealed; when to take effect (§§ 130- 
131). 

ARTICLE I 
Short Title ; Application ; Definitions 

Section 1. Short title. 

2. Application. 

3. Definitions. 

Section 1. Short Title. — This chapter shall be known 
as the 'workmen's compensation law." 

§ 2. Application. — Compensation provided for in 
this chapter shall be payable for injuries sustained or 
death incurred by employees engaged in the following 
hazardous employments :* 

For the Commission's power to rearrange the groups of § 2, 
compare § 95. 

Group 1. The operation, including construction and re- 
pair, of railways operated by steam, electric or other 
motive power, street railways, and incline railways, but 
not their construction when constructed by any person 
other than the company which owns or operates the rail- 
way, including work of express, sleeping, parlor and din- 
ing car employees on railway trains. 

Compare § 114, Interstate commerce. 

Group 2. Construction, repair and operation of rail- 
ways not included in group 1. [Group 2 amd by L. 1916, 
ch, 622.] 

Compare § 114, Interstate commerce. 

* Compare the notes to the several subdivisions under § 3. 



APPENDIX A 291 

Group 3. The operation, including construction and re- 
pair, of car shops, machine shops, steam and power 
plants, and other works for the purposes of any such 
railway, or used or to be used in connection with it when 
operated, constructed or repaired by the company which 
owns or operates the railway. 

Compare § 114, Interstate commerce. 

Group 4. The operation, including construction and re- 
pair of car shops, machine shops, steam and power plants, 
not included in group three. 

Compare § 114, Interstate commerce. 

Group 5. The operation, including construction and re- 
pair, of telephone lines and wires for the purposes of the 
business of a telephone company, or used or to be used 
in connection with its business, when constructed or 
operated by the company. 

Compare § 114, Interstate commerce. 

Group 6. The operation, including construction and re- 
pair, of telegraph lines and wires for the purposes of the 
business of a telegraph company, or used or to be used 
in connection with its business, when constructed or op- 
erated by the company. 

Compare § 114, Interstate commerce. 

Group 7. Construction or repair of telegraph and tele- 
phone lines not included in groups five and six. [Group 
7 am'd by L. 1916, ch. 622.] 

Compare § 114, Interstate commerce. 

Group 8. The operation, within or without the state, 
including repair, of vessels other than vessels of other 
states or countries used in interstate or foreign commerce, 



292 COMPENSATION INSURANCE 

when operated or repaired by the company ; marine 
wrecking. [Group 8 am'd by L. 1916, ch. 622.] 

Compare § 114, Interstate Commerce, and group 10, below, 
note on longshore work. 

"Operation" includes loading and unloading; when the em- 
ployer and owner is a New York corporation, the presumption 
is that the vessel is not one of another State or country : Ed- 
wardsen v. Jarvis Lighterage Co., 168 App. Div. 368. 

Group 9. Shipbuilding, including construction and re- 
pair in a ship-yard or elsewhere, not included in group 
eight. 

Group 10. Longshore work, including the loading or 
unloading of cargoes or parts of cargoes of grain, coal, 
ore, freight, general merchandise, lumber or other prod- 
ucts or materials, or moving or handling the same on any 
dock, platform or place, or in any warehouse or other 
place of storage. 

Compare § 114, Interstate commerce. 

The specific enumeration of longshore work in this group ex- 
cludes such work from group 8: Jensen v. Southern Pacific Co., 
215 N. Y. 519, 520. 

Rag picking in a refuse dump on the shore is not longshore 
work: Tomassi v. Christensen, 171 App. Div. 284. 

Group 11. Dredging, subaqueous or caisson construc- 
tion or repair, and pile driving. [Group 11 amd by L. 
1916, ch. 622.] 

Driving sheeting for a jetty to protect baths on a water front 
is pile driving: Mazzarisi v. Ward & Tully, S. D. R.,* vol. 4, 
p. 443; 170 App. Div. 868. 

Group 12. Construction, installation, repair or opera- 
tion of electric light and electric power lines, dynamos, 
or appliances, and power transmission lines. [Group 12 
am'd by L. 1916, ch. 622.] 

*"S. D. R. is an abbreviation for State Department Reports. 



APPENDIX A 293 

Group 13. Paving; road building, curb and sidewalk 
construction or repair ; sewer and subway construction or 
repair, work under compressed air, excavation, tunneling 
and shaft sinking, well digging, laying and repair of un- 
derground pipes, cables and wires, not included in other 
groups ; street cleaning, ashes, garbage or snow removal ; 
operation of waterworks. [Group 13 am'd by L. 191 6, ch. 
622.] 

Group 14. Lumbering; logging, river-driving, rafting, 
booming, saw mills, bark mills ; shingle mills, lath mills, 
lumber yards ; manufacture of veneer and of excelsior ; 
manufacture of barrels, kegs, vats, tubs, staves, spokes, 
or headings. [Group 14 am'd by L. 1916, ch. 622.] 

Group 15. Pulp and paper mills. 

Group 16. Manufacture of furniture, interior wood- 
work, organs, pianos, piano actions, canoes, small boats, 
coffins, wicker and rattan ware ; upholstering ; manufac- 
ture of mattresses or bed springs. 

Group 17. Planing mills, sash and door factories, man- 
ufacture of wooden and corrugated paper boxes, cheese 
boxes, moldings, window and door screens, window 
shades, carpet sweepers, wooden toys, wooden articles 
and wares or baskets; cork cutting. [Group 17 am'd by 
L. 1916, ch. 622.] 

Group 18. Mining; reduction of ores and smelting; 
preparation of metals or minerals ; oil and gas wells. 
[Group 18 am'd by L. 1916, ch. 622.] 

Group 19. Quarries; sand, shale, clay or gravel pits, 
lime kilns ; manufacture of brick, tile, terra-cotta, asbes- 
tos, fire-proofing, or paving blocks, manufacture of cal- 
cium carbide, cement, asphalt or paving material ; stone 
crushing or grinding. [Group 19 am'd by L. 1916, ch. 

622,] 

20 



294 COMPENSATION INSURANCE 

* 

Group 20. Manufacture of glass, glass products, glass- 
ware, porcelain or pottery. 

Group 21. Iron, steel or metal foundries ; rolling mills ; 
manufacture of castings, forgings, heavy engines, locomo- 
tives, machinery, safes, anchors, cables, rails, shafting, 
wires, tubing, pipes, sheet metal, boilers, furnaces, stoves, 
structural steel, iron or metal ; machine shops including 
repairs. [Group 21 am'd by L. 1916, ch. 622.] 

Group 22. Operation and repair of stationary engines 
and boilers, freight and passenger elevators, not included 
in other groups ; window cleaning ; heating and lighting. 
[Group 22 am'd by L. 1916, ch. 622.] 

In connection wkh the addition of elevators to group 22 by 
L. 1916, ch. 622, compare note under group 41. 

Group 23. Manufacture of small castings or forgings, 
metal wares, instruments, utensils and articles, hardware, 
nails, wire goods, screws, bolts, metal beds, sanitary, 
water, gas or electric fixtures, light machines, typewriters, 
cash registers, adding machines, carriage mountings, bi- 
cycles, metal toys, tools, cutlery, instruments, photo- 
graphic cameras and supplies, sheet metal products, but- 
tons; jewelry; gold, silver and plated ware; articles of 
bone, ivory and shell. [Group 23 am'd by L. 1916, ch. 
622.] 

Group 24. Manufacture of agricultural implements, 
threshing machines, traction engines, wagons, carriages, 
sleighs, vehicles, automobiles, motor trucks, toy wagons, 
sleighs or baby carriages ; blacksmiths ; horse-shoers. 
[Group 24 am'd by L. 1916, ch. 622.] 

Group 25. Manufacture of explosives and dangerous 
chemicals, corrosive acids or salts, ammonia, gasoline, pe- 
troleum, petroleum products, celluloid, gas, charcoal, arti- 



APPENDIX A 295 

ficial ice, gun powder or ammunition ; ice harvesting, ice 
storage and ice distribution. [Group 25 am'd by L. 1916, 
ch. 622.] 

The addition of the ice industry to this group by L. 1916, 
ch. 622, may be considered in connection with Aylesworth v. 
Phoenix Cheese Co., 170 App. Div. 34. 

Group 26. Manufacture of paint, color, varnish, oil, 
japans, turpentine, printing and other ink, printers' 
rollers, tar, tarred, pitched or asphalted paper. [Group 
26 am'd by L. 1916, ch. 622.] 

Group 2J. Distilleries, breweries ; manufacture of spir- 
ituous or malt liquors, alcohol, wine, mineral water or 
soda waters; bottling. [Group 2J am'd by L. 1916, ch. 
622.] 

Group 28. Manufacture of drugs and chemicals, not 
specified in group twenty-five, medicines, dyes, extracts, 
pharmaceutical or toilet preparations, soaps, candles, per- 
fumes, non-corrosive acids or chemical preparations, fer- 
tilizers, including garbage or sewerage disposal plants ; 
shoe blacking or polish. [Group 28 am'd by L. 1916, ch. 
622.] 

This group covers a general utility man accidentally killed 
while building a shelf in a wholesale drug establishment.: 
Larsen v. Paine Drug Co., 169 App. Div. 838; affirmed by Court 
of Appeals, May 12, 1916. 

A mere refuse dump is not a garbage disposal plant : Tomassi 
v. Christensen, 171 App. Div. 284. 

Group 29. Milling; manufacture of cereals or cattle 
foods, warehousing; storage of all kinds and storage for 
hire ; operation of grain elevators. [Group 29 am'd by L. 
•1916, ch. 622.] 

The amendment of 1916, inserting the words "of all kinds 
and storage for hire" appears to cover private as well as public 



296 COMPENSATION INSURANCE 

storage and so to offset Mihm v. Hussey, 169 App. Div. 742, as 
a precedent. 

Injury to an employee of a storage company by the overturning 
of an automobile while he is buying fruit for his employer is not 
compensatable : Sickles v. Ballston R. S. Co., 171 App. Div. 108. 

Group 30. Packing houses, meat markets, abattoirs, 
manufacture or preparation of meats or meat products or 
glue, gelatine, paste or wax. [Group 30 amd by L. 1916, 
ch. 622.] 

In connection with the words "meat markets" inserted by 
L. 1916, ch. 622, compare Kohler v. Frohmann, 167 App. Div. 
533, and Newman v. Newman, 169 App. Div. 745, affirmed by the 
Court of Appeals, June 6, 1916. 

This group does not cover the ordinary preparation of meat 
for cooking purposes : De La Gardelle v. Hampton Co., 167 
App. Div. 617. 

Group 31. Tanneries. 

Group ^2. Furriers ; manufacture of leather goods and 
products, belting, saddlery, harness, trunks, valises, boots, 
shoes, gloves, umbrellas, rubber goods, rubber shoes, tub- 
ing, tires or hose. [Groups 32 am'd by L. 1916, ch. 622.] 

Group 33. Canning or preparation of fruit, vegetables, 
fish or food stuffs ; pickle factories and sugar refineries ; 
manufacture of dairy products. [Group 33 amd by L. 
1916, ch. 622.] 

This group does not cover the ordinary preparation of food 
stuffs for cooking purposes : De La Gardelle v. Hampton Co., 
167 App. Div. 617. 

Group 34. Bakeries, including manufacture of crackers 
and biscuits, manufacture of confectionery, spices or con- 
diments. 

Group 35. Manufacture of tobacco, cigars, cigarettes 
or tobacco products. 



APPENDIX A 297 

Group 35. Manufacture of cordage, ropes, fiber, 
brooms or brushes ; manila or hemp products. 

Group 37. Flax mills ; manufacture of textiles or fab- 
rics, spinning, weaving and knitting manufactories ; manu- 
facture of yarn, thread, hosiery, cloth, blankets, carpets, 
canvas, bags, shoddy or felt. 

Group 38. Manufacture of men's or women's clothing, 
white wear, shirts, collars, corsets, hats, caps, furs or 
robes, or other articles from textiles or fabrics. [Group 
38 amd by L. 1916, ch. 622.] 

Group 39. Power laundries ; dyeing, cleaning or 
bleaching. 

Group 40. Printing, engraving, photo-engraving, stere- 
otyping, electrotyping, lithographing, embossing ; manu- 
facture of moving picture machines and films; manufac- 
ture of stationery, paper, cardboard boxes, bags, or 
wallpaper; and bookbinding. [Group 40 amd by L. 
1916, ch. 622.] 

Group 41. The operation, otherwise than on tracks, on 
streets, highways, or elsewhere of cars, trucks, wagons or 
other vehicles, and rollers and engines, propelled by 
steam, gas, gasoline, electric, mechanical or other power 
or drawn by horses or mules ; public garages, livery, 
boarding or sales stables; movers of all kinds. [Group 
41 amd by L. 1916, ch. 622.] 

The business of operating vehicles is covered by this group; 
so that accidents to the following employees are compensatable : 
a stableman who does no driving : Costello v. Taylor, 217 N. Y. 
179; a driver putting his horse in its stall: Smith v. Price, 168 
App. Div. 421 ; a helper on an automobile truck chasing mis- 
chievous boys : Hendricks v. Seeman Bros., 170 App. Div. 133, 
and a driver of a florist's wagon adjusting a customer's window 
box: Glatel v. Stump, S. D. R., vol. 6, p. 397. Compare note 
to § 3, subd. 1. 



298 COMPENSATION INSURANCE 

Elevators are not vehicles within the purview of this group: 
Wilson v. Dorflinger & Sons, 218 N. Y. 84, but are covered by 
the amendment to group 22 effected by L. 1916, ch. 622. 

A driver who had put up his horse several hours before and 
was injured while making deliveries afoot was denied compensa- 
tion : Newman v. Newman, 169 App. Div. 745, affirmed by the 
Court of Appeals, June 6, 1916; compare note to § 2, group 30. 

Group 42. Stone cutting or dressing ; marble works ; 
manufacture of artificial stone ; steel building and bridge 
construction or repair ; installation or repair of elevators, 
fire escapes, boilers, engines or heavy machinery ; brick- 
laying, tile-laying, mason work, stone-setting, concrete 
work, plastering; and manufacture of concrete blocks; 
structural carpentry ; painting, papering, picture hanging, 
glazing, decorating or renovating ; sheet metal work ; roof- 
ing; construction, repair and demolition of buildings, 
bridges and other structures ; salvage of buildings or con- 
tents ; plumbing, sanitary lighting or heating installation 
or repair ; installation and covering of pipes or boilers ; 
junk dealers. [Group 42 amd by L. igi6, ch. 622.] 

A macaroni company casually employing a carpenter to put in 
a partition is not carrying on the carpenter business for profit 
and is not, therefore, liable for compensation when the carpenter 
meets with an accident : Bargey v. Massaro Macaroni Co., 170 
App. Div. 103 ; affirmed by the Court of Appeals, June 16, 1916. 

Group 43. Any employment enumerated in the forego- 
ing groups and carried on by the state or a municipal 
corporation or other subdivision thereof, notwithstanding 
the definition of the term "employment" in subdivision five 
of section three of this chapter. [Group 43 added by L. 
1916, ch. 622.] 

Compare § 3, subds. 3, 5. 

Contracts for public work must "contain a stipulation that the 
same shall be void and of no effect unless the person or cor- 
poration making or performing the same shall secure compensa- 



APPENDIX A 299 

tion for the benefit of, and keep insured during the life of said 
contract, such employees, in compliance with the provisions of 
said law." L. 1916, ch. 478. 

Any employer not carrying on one of the employments 
enumerated in this section, or who carrying on one of 
such employments has in his employ an employee not in- 
cluded within the term "employee" as denned by section 
three of this chapter, and the employees of any such 
employer may, by their joint election, elect to become 
subject to the provisions of this chapter in the manner 
hereinafter provided. Such election on the part of the 
employer shall be made by posting notices thereof about 
the place where the workmen are employed, in a manner 
to be prescribed by rules to be adopted by the commission, 
and by filing with the commission a written statement, in 
a form to be prescribed by the commission, to the effect 
that he accepts the provisions of this chapter and that he 
adopts subject to the approval of the commission one of 
the methods of securing compensation to his employees 
prescribed in section fifty of this chapter which, when 
so filed with and approved by the commission as to form 
and method of securing compensation shall operate to 
subject him to the provisions of this chapter and of all 
acts amendatory thereof for the period of one year from 
the date of such approval, and thereafter without further 
act on his part for successive terms of one year each, 
unless such employer shall, at least sixty days prior to 
the expiration of such first or any succeeding year, file 
with the commission a notice in writing that he withdraws 
his election. 

Any employee in the service of any such employer shall 
be deemed to have accepted, and shall be subject to the 
provisions of this chapter and any act amendatory thereof, 
if, at the time of the accident for which liability is 



300 COMPENSATION INSURANCE 

claimed, the employer charged with such liability has 
not withdrawn his election and the employee shall not 
at the time of entering into his contract of hire have 
given to his employer notice in writing that he elects not 
to be subject to the provisions of this chapter and filed a 
copy thereof with the commission, or in the event that 
such contract for hire was made in advance of the elec- 
tion of the employer, such employee shall not have given 
to his employer and filed with the commission within 
twenty days after such election notice in writing that he 
elects not to be subject to such provisions. 

A minor employee shall be deemed sui juris for the 
purpose of making such an election. 

The rights and remedies, benefits and liabilities of- an 
employer or employee so electing to become subject to 
the provisions of this chapter shall thereupon become the 
same as they would have been had they been engaged 
in one of the occupations or employments enumerated 
herein and the words employer or employee wherever 
they appear in this chapter shall be construed as including 
an employer or employee who has so elected to become 
subject to its provisions. [Section 2 am'd by L. 1916, 
ch. 622.] 

§ 3. Definitions. As used in this chapter, 1. "Haz- 
ardous employment" means a work or occupation de- 
scribed in section two of this chapter. 

The courts have held the coverage of the hazardous employ- 
ments broad enough to include work and occupations incidental 
to them. See note to § 2, group 41, for illustrative cases. See 
also Larsen v. Paine Drug Co., 169 App. Div. 138; affirmed by 
the Court of Appeals, May 12, 1916; McQueeney v. Sutphen & 
Myer, 167 App. Div. 528 ; Kohler v. Frohmann, 167 App. Div. 533. 
Such incidentalness has been declared not evident in Newman v. 
Newman, 169 App. Div. 745, and Gleisner v. Gross & Herbener, 
170 App. Div. 37. Compare also Aylesworth v. Phoenix Cheese 



APPENDIX A 301 

Co., 170 App. Div. 34, and Sickles v. Ballston R. S. Co., 171 App. 
Div. 108. The Gleisner case draws the distinction between inci- 
dentalness and non-incidentalness. This incidental coverage has 
been broadened further by the amendment of L. 1916, ch. 622, 
inserting the phrase "principal business" in § 3, subd. 4, below. 

2. ''Commission" means the state industrial commis- 
sion, as constituted by this chapter. [Subd. 2 amd by L. 
1916, ch. 622.] 

3. "Employer," except when otherwise expressly stated, 
means a person, partnership, association, corporation, and 
the legal representatives of a deceased employer, or the 
receiver or trustee of a person, partnership, association 
or corporation, employing workmen in hazardous employ- 
ments including the state and a municipal corporation or 
other political subdivision thereof. [Subd. 3 amd by L. 
1914, ch. 316.] 

Compare § 2, group 43, § 3, subds. 4, 5 ; § 54, subd. 6. 

A number of accidents have involved a doubt as to which of 
two employers ought to pay the compensation. In the leading 
case of Dale v. Saunders Bros., 171 App. Div. 528; 218 N. Y. 59, 
the Appellate Division held that the fact that the special em- 
ployer might be liable for compensation did not absolve the 
general employer and the Court of Appeals held that the ques- 
tion whose employee the injured person was belonged under 
§ 20 solely to the Commission as a matter of fact, the courts not 
having jurisdiction. For other cases consult S. D. R., vol. 2, pp. 
475, 480; vol. 4, p. 337; vol. 6, pp. 310, 386; no. 37, p. 102. 

4. "Employee" means a? person engaged in one of the 
occupations enumerated in section two or who is in the 
service of an employer whose principal business is that 
of carrying on or conducting a hazardous employment 
upon the premises or at the plant, or in the course of 
his employment away from the plant of his employer ; and 
shall not include farm laborers or domestic servants. 
[Subd. 4 am'd by L. 1916, ch. 622.] 



302 COMPENSATION INSURANCE 

The word "engaged" has been interpreted in the case of an 
employee injured immediately after quitting work: De Voe 
v. N. Y. State Railways, 169 App. Div. 472, affirmed by the Court 
of Appeals, June 6, 1916. Commission rulings in similar cases 
of coming to or leaving work may be consulted in S. D. R., 
vol. 1, pp. 424, 429; vol. 5, p. 438; vol. 6, pp. 308, 339, 403. 

For distinction between an independent contractor and an em- 
ployee see Rheinwald v. Builders' Brick & Supply Co., S. D. R., 
vol. 1, p. 417; 168 App. Div. 425; and Powley v. Vivian & Co., 
S. D. R., vol. 3, p. 366, 169; App. Div. 170. The Commission has 
made a new ruling in the Rheinwald case, S. D. R., no. 40, 
p. 67, Feb. 16, 1916, from which appeal has been taken to the 
courts. 

An accident to an employee occurring without the State is 
compensatable : Post v. Burger & Gohlke, 216 N. Y. 544; Spratt 
v. Sweeney & Gray Co., 168 App. Div. 403 ; affirmed, 216 N. Y. 
763 ; but compare Garner v. Horseheads Construction Co., 171 
App. Div. 66, where the injured employee's contract of em- 
ployment related solely to work to be performed outside the 
State, and Lloyd v. Power Specialty Co., S. D. R., no. 38, p. 78, 
where the injured employee neither resided in, nor was injured 
in New York State, though his contract of employment had been 
made there. 

An injured employee may have compensation, though he has 
made false statements in obtaining his employment : Kenny v. 
Union Railway Co., 166 App. Div. 497 ; and though he is also an 
officer or stockholder, or both, of his employer company; Cantor 
v. Rubin Musicant Co., S. D. R., vol. 3, p. 392 ; Kennedy v. 
Kennedy Manufacturing & Engineering Co., S. D. R., no. 37, 
p. 107. Compare Beckmann v. Oelerich, argued in App. Div. 
May 3, 1916. The amendment by L. 1916, ch. 622, adding § 54, 
subd. 6, below, is in line with the opinions cited in this second 
instance. 

5. "Employment" includes employment only in a trade, 
business or occupation carried on by the employer for 
pecuniary gain, except where the employer and his em- 
ployees have by their joint election elected to become sub- 
ject to the provisions of this chapter as provided in sec- 
tion two. [Subd. 5 am'd by L. 1916, ch. 622.] 



APPENDIX A 303 

Another exception added by L. 1916, ch. 622, as new group 43 
of § 2, extends the right of compensation to state and municipal 
employees in hazardous employments not conducted for pecuniary 
gain. 

In Mihm v. Hussey, 169 App. Div. 742, the case of a whole- 
sale merchant storing his own goods, the court held that storage 
other than for hire was not carried on for pecuniary gain. The 
effect of this decision as a precedent appears to be met by the 
amendment of 1916 to § 2, group 29, which see. 

A macaroni company casually employing a carpenter to put in 
a partition is not carrying on the carpentry business for profit 
and, therefore, an accident to the carpenter is not compensatable : 
Bargey v. Massaro Macaroni Co., 170 App. Div. 103 ; affirmed by 
the Court of Appeals, June 16, 1916. 

6. "Compensation" means the money allowance payable 
to an employee or to his dependents as provided for in 
this chapter, and includes funeral benefits provided 
therein. 

7. "Injury" and "personal injury" mean only acci- 
dental injuries arising out of and in the course of employ- 
ment and such disease or infection as may naturally and 
unavoidably result therefrom. 

On the ground that they arose out of and in the course of 
employment the courts have held the following injuries com- 
pensatable: injury while seeking shelter from storm: Moore 
v. Lehigh Valley R. R. Co., 169 App. Div. 177; injury from 
contact with poison ivy : Plass v. Central New England Ry. 
Co., 169 App. Div. 826; injury by the employee's own motor 
cycle used by him for going to and from his employer's jobs: 
Kingsley v. Donovan, 169 App. Div. 828; injury due to assault 
connected with dispute about employment, methods of work, etc. : 
Yume v. Knickerbocker Portland Cement Co., S. D. R., vol. 3, 
P- 353; 169 App. Div. 905; 216 N. Y. 653; Harnett v. Steen 
Building Co., 169 App. Div. 905 ; 216 N. Y. 101 ; Heitz v. Ruppert 
Brewery Co., Court of Appeals, May 2, 1916 ; James v. Witherbee- 
Sherman & Co., S. D. R., vol. 2, p. 483; injury while going to 
rescue of another workman : Waters v. Taylor Co., Court of 
Appeals, May 12, 1916; Martucci v. Hills Bros. Co., 171 App. 



304 COMPENSATION INSURANCE 

Div. 370. Injuries due to sportive acts or horseplay between 
employees are not compensatable : De Filippis v. Falkenburg, 
170 App. Div. 153. The Court of Appeals, June 16, 1916, reversed 
an order of the Appellate Division and dismissed a compensation 
claim for injury due to taking poison by mistake for medicine: 
O'Neil v. Carley Heater Co., S. D. R., vol. 6, p. 314. 

The subtle connections of accidental injury with ensuing infec- 
tion or disease would seem to offer a wide and varied field fo>r 
controversy as to facts. Compare note on evidence under § 68. 
The Commission has awarded compensation for disability of a 
hoist runner who jumped into a river to escape being struck by a 
broken timber and thereby contracted a cold that developed into 
pulmonary tuberculosis, S. D. R., vol. 5, p. 381 (Rist v. Larkin 
& Sangster, affirmed, 171 App. Div. 71) ; for deaths from delirium 
tremens, 169 App. Div. 450; S. D. R., vol. 5, p. 380; vol. 6, p. 401, 
no. 39, p. 62 ; for death of an electrotype finisher from angina 
pectoris due to exhaustion from prolonged over-exertion, S. D. 
R., vol. 3, p. 395 ; for insanity of an elevated railway motorman 
caused by the shock of a collision, S. D. R., vol. 5, pp. 371, 374; 
for infection in the finger of a cloak model due to the prick of 
a pin while she was trying on an unfinished garment, S. D. R., 
vol. 5, p. 385 ; for infection in a laceration on the head of a sub- 
way worker caused by the falling of a beam, S. D. R., vol. 6, 
P- 394 > for anthrax contracted by a trimmer of skins in a tannery 
through an accidental abrasion in his cheek, S. D. R., vol. 6, 
p. 388; for death of a street railway process server from 
gangrenous diabetes resultant from a fellow passenger's treading 
upon his toes while he was returning to the office on one of his 
employer's cars, S. D. R., no. 37, p. 97; no. 39, p. 59; and for 
death of a driver from tetanus as the result of a wound in the 
foot by a rusty nail, S. D. R., vol. 6, p. 355 ; no. 38, p. 76. 

The Commission, on ground of the lack of evidence, has 
denied benefits to widows for the deaths of their husbands from 
the following diseases : blood poisoning claimed to have been 
due to rupture of the mucous membrane inside of the nose, per- 
mitting the entrance of germs, the rupture having been caused 
by an accidental blow from a container, S. D. R., vol. 6, p. 336; 
tubercular trouble claimed to have been hastened by the fracture 
of a leg, S. D. R., vol. 6, p. 349; intestinal ulcers claimed to 
have been caused by crushing of the body against a truck, S. D. 
R., vol. 6, p. 304; lobar pneumonia claimed to have been due to 



APPENDIX A 305 

weakness caused by the amputation of a finger, S. D. R., vol. 6, 
p. 383 ; and a paralytic stroke or an embolism claimed to have 
resulted from severe vibration of a compressed air drill, S. D. R., 
no. 37, p. 100. 

8. "Death" when mentioned as a basis for the right to 
compensation means only death resulting from such in- 
jury. 

9. "Wages" means the money rate at which the service 
rendered is recompensed under the contract of hiring in 
force at the time of the accident, including the reason- 
able value of board, rent, housing, lodging or similar 
advantage received from the employer. 

For the use of wages as the basis of compensation, see §§ 14, 
15, 101, 102, 113. 

10. "State fund" means the state insurance fund pro- 
vided for in article five of this chapter. 

11. "Child" shall include a posthumous child and a 
child legally adopted prior to the injury of the employee; 
and a stepchild dependent upon the deceased. [Subd. 11 
amd by L. 1916, ch. 622.] 

12. "Insurance carrier" shall include the state fund, 
stock corporations or mutual associations with which em- 
ployers have insured, and employers permitted to pay 
compensation directly under the provisions of subdivision 
three of section fifty. 

13. "Manufacture," "construction," "operation" and 
"installation" shall include "repair," "demolition" and 
"alteration." [Subd. 13 added by L. 1916, ch. 622.] 

ARTICLE 2 

Compensation 

Section 10. Liability for compensation. 
11. Alternative remedy. 



306 COMPENSATION INSURANCE 

12. Compensation not allowed for first two weeks. 

13. Treatment and care of injured employees. 

14. Weekly wages basis of compensation. 

15. Schedule in case of disability. 

16. Death benefits. 

17. Aliens. 

18. Notice of injury. 

19. Medical examination. 

20. Determination of claims for compensation. 

21. Presumptions. 

22. Modification of award. 

23. Appeals from the commission. 

24. Costs and fees. 

25. Compensation, how payable. 

26. Enforcement of payment in default. 

27. Depositing future payments. 

28. Limitation of right to compensation. 

29. Subrogation • to remedies of employee. 

30. Revenues or benefits from other sources not to affect 

compensation. 

31. Agreement for contribution by employee void. 
2,2. Waiver agreements void. 

33. Assignments ; exemptions. 

34. Preferences. 

§ 10. Liability for Compensation. — Every employer 
subject to the provisions of this chapter shall pay or pro- 
vide as required by this chapter compensation according 
to the schedules of this article for the disability or death 
of his employee resulting from an accidental personal in- 
jury sustained by the employee arising out of and in the 
course of his employment, without regard to fault as a 
cause of such injury, except where the injury is occa- 
sioned by the willful intention of the injured employee to 
bring about the injury or death of himself or of another, 
or where the injury results solely from the intoxication 
of the injured employee while on duty. Where the injury 
is occasioned by the willful intention of the injured em- 
ployee to bring about the injury or death of himself or of 



APPENDIX A 307 

another, or where the injury results solely from the intox- 
ication of the injured employee while on duty, neither the 
injured employee nor any dependent of such employee 
shall receive compensation under this chapter. 

For decisions interpreting the phrases "arising out of" and 
"in the course of" compare notes to § 3, subd. 7. 

§ 11. Alternative Remedy. — The liability of an em- 
ployer prescribed by the last preceding section shall be ex- 
clusive and in place of any other liability whatsoever, to 
such employee, his personal representatives, husband, par- 
ents, dependents or next of kin, or any one otherwise 
entitled to recover damages, at common law or otherwise 
on account of such injury or death, except that if an 
employer fail to secure the payment of compensation for 
his injured employees and their dependents as provided 
in section fifty of this chapter, an injured employee, or his 
legal representative in case death results from the injury, 
may, at his option, elect to claim compensation under 
this chapter, or to maintain an action in the courts for 
damages on account of such injury; and in such an action 
it shall not be necessary to plead or prove freedom from 
contributory negligence nor may the defendant plead as 
a defense that the injury was caused by the negligence of 
a fellow servant nor that the employee assumed the risk 
of his employment, nor that the injury was due to the 
contributory negligence of the employee. [As am'd by 
L. 1914, ch. 316; and L. 1916, ch. 622.] 

L. 1916, ch. 622, harmonizes § 11 with § 52 by inserting the 
phrase "or legal representatives" in § 52. Compare Dearborn v. 
Peugeot Auto Import Co., 170 App. Div. 93, which holds that the 
widow of an employee need not qualify as administratrix or 
executrix in order to make the election permitted by § 11. 

The amendment of § 11 effected by L. 1916, ch. 622, should be 
read in the light of Shinnick v. Clover Farms Co., 169 App. 



308 COMPENSATION INSURANCE 

Div. 236, and Shanahan v. Monarch Engineering Co., 92 Misc. 
466. Compare also § 53, and clause relative to disfigurement, 
added to § 15, subd. 3, by L. 1916, ch. 622. 

For the General Employers' Liability Law, see article 14 of 
the Labor Law. See also §§29 and 53 of the Workmen's Com- 
pensation Law ; Liability of Railway Companies, Railroad Law, 
§ 64; Damages for Injuries Causing Death, Constitution of 
New York, Art. 1, § 18; and Code of Civil Procedure, § 1902; 
and Criminal Liability for Negligence, Penal Law, §§ 1052, 1893. 

§ 12. Compensation Not Allowed for First Two 
Weeks. — No compensation shall be allowed for the first 
fourteen days of disability, except the benefits provided 
for in section thirteen of this chapter. 

§ 13. Treatment and Care of Injured Employees. 
— The employer shall promptly provide for an injured 
employee such medical, surgical or other attendance or 
treatment, nurse and hospital service, medicines, crutches 
and apparatus as may be required or be requested 
by the employee, during sixty days after the injury. If 
the employer fail to provide the same, the injured em- 
ployee may do so at the expense of the employer. The 
employee shall not be entitled to recover any amount ex- 
pended by. him for such treatment or services unless he 
shall have requested the employer to furnish the same 
and the employer shall have refused or neglected to do so. 
All fees and other charges for such treatment and serv- 
ices shall be subject to regulation by the commission as 
provided in section twenty-four of this chapter, and shall 
be limited to such charges as prevail in the same com- 
munity for similar treatment of injured persons of a like 
standard of living. 

See also § 24. 

In Keigher v. General Electric Co., decided in May, 1916, the 
Appellate Division held that the employer was not liable for 
physician's services because the employee had rejected the 
physician selected by the employer. 



APPENDIX A 309 

In Morey v. Worden, S. D. R., vol. 2, p. 297, the injured em- 
ployee did not request treatment within the sixty-day limit, but 
the employer had notice that treatment was necessary ; the com- 
mission, therefore, awarded the amount expended for treatment. 

§ 14. Weekly Wages Basis of Compensation. — Ex- 
cept as otherwise provided in this chapter, the average 
weekly wages of the injured employee at the time of the 
injury shall be taken as the basis upon which to compute 
compensation or death benefits, and shall be determined 
as follows : 

1. If the injured employee shall have worked in the 
employment in which he was working at the time of the 
accident, whether for the same employer or not, during 
substantially the whole of the year immediately preceding 
his injury, his average annual earnings shall consist of 
three hundred times the average daily wage or salary 
which he shall have earned in such employment during 
the days when so employed ; 

2. If the injured employee shall not have worked in 
such employment during substantially the whole of such 
year, his average annual earnings shall consist of three 
hundred times the average daily wage or salary which 
an employee of the same class working substantially the 
whole of such immediately preceding year in the same or 
in a similar employment in the same or a neighboring 
place shall have earned in such employment during the 
days when so employed ; 

3. If either of the foregoing methods of arriving at 
the annual average earnings of an injured employee can- 
not reasonably and fairly be applied, such annual earn- 
ings shall be such sum as, having regard to the previous 
earnings of the injured employee and of other employees 
of the same or most similar class, working in the same or 
most similar employment in the same or neighboring lo- 

21 



310 COMPENSATION INSURANCE 

cality, shall reasonably represent the annual earning ca- 
pacity of the injured employee in the employment in 
which he was working at the time of the accident ; 

4. The average weekly wages of an employee shall be 
one-fifty-second part of his average annual earnings ; 

5. If it be established that the injured employee was 
a minor when injured, and that under normal conditions 
his wages would be expected to increase, the fact may be 
considered in arriving at his average weekly wages. 

In connection with subd. 5 compare Kilberg v. Vitch, 171 App. 
Div. 89. 

Wages are defined by § 3, subd. 9; for other provisions com- 
pare §§ 15, 101, 102, 113. 

Custom tends to fix the average daily wage : Fredenburg v. 
Empire U. Railways, 168 App. Div. 618. 

Subdivision 5 of section 15, following, establishes maximum and 
minimum limits for the use of the average weekly wages as the 
basis of compensation under § 15, and, also, according to the 
ruling of the Commission in Morey v. Worden, S. D. R., vol. 2, 
p. 494, absolutely excludes use of the average weekly wages as 
the basis of compensation for loss of hand, arm, foot, leg, or eye. 
For loss of these members, the wages at the time of the injury, 
and not the average weekly wages, are the basis. 

§ 15. Schedule in Case of Disability. — The follow- 
ing schedule of compensation is hereby established : 

1. Total permanent disability. In case of total dis- 
ability adjudged to be permanent, sixty-six and two-thirds 
per centum of the average weekly wages shall be paid 
to the employee during the continuance of such total dis- 
ability. Loss of both hands, or both arms, or both feet, 
or both legs, or both eyes, or of any two thereof shall, in 
the absence of conclusive proof to the contrary, constitute 
permanent total disability. In all other cases perma- 
nent total disability shall be determined in accordance 
with the facts. 



APPENDIX A 311 

The compensation of an employee who loses any two of the 
members named in this section by different accidents occurring 
at different times, e. g., the loss of one hand in 1909 and the 
loss of the other in 1916, is determined by § 15, subd. 6, which 
see. 

2. Temporary total disability. In case of temporary 
total disability, sixty-six and two-thirds per centum of the 
average weekly wages shall be paid to the employee dur- 
ing the continuance thereof, but not in excess of three 
thousand five hundred dollars, except as otherwise pro- 
vided in this chapter. 

"Except as otherwise provided," compare § 13. 

On the subject of malingering, compare Glidder v. Haliver, 
S. D. R., vol. 6, p. 366. 

Concurrent awards for temporary total disability and 
permanent partial disability are not within the intent of the law : 
Fredenburg v. Empire U. Railways, 168 App. Div. 618. 

3. Permanent partial disability. In case of disability 
partial in character but permanent in quality the com- 
pensation shall be sixty-six and two-thirds per centum of 
the average weekly wages and shall be paid to the em- 
ployee for the period named in the schedule as follows : 

Thumb. For the loss of a thumb, sixty weeks. 

First finger. For the loss of a first finger, commonly 
called index finger, forty-six weeks. 

Second finger. For the loss of a second finger, thirty 
weeks. 

Third finger. For the loss of a third finger, twenty-five 
weeks. 

Fourth finger. For the loss of a fourth finger, com- 
monly called the little finger, fifteen weeks. 

For loss of fingers, see also below, this subdivision, under 
"Loss of Use." 

Phalange of thumb or finger. The loss of the first pha- 



312 COMPENSATION INSURANCE 

lange of the thumb or finger shall be considered to be equal 
to the loss of one-half of such thumb or finger, and com- 
pensation shall be one-half of the amount above specified. 
The loss of more than one phalange shall be considered 
as the loss of the entire thumb or finger ; provided, how- 
ever, that in no case shall the amount received for more 
than one finger exceed the amount provided in this 
schedule for the loss of a hand. 

The amputation of one-third of the first phalange of a finger 
has been held to constitute, in law, the loss of the phalange, and, 
therefore, the loss of half the finger : Matter of Petrie, 165 
App. Div. 561; 215 N. Y. 335. 

Great toe. For the loss of a great toe, thirty-eight 
weeks. 

Other toes. For the loss of one of the toes other than 
the great toe, sixteen weeks. 

Phalange of toe. The loss of the first phalange of any 
toe shall be considered to be equal to the loss of one-half 
of said toe, and the compensation shall be one-half of the 
amount specified. The loss of more than one phalange 
shall be considered as the loss of the entire toe. 

Hand. The loss of a hand, two hundred and forty- 
four weeks. 

Arm. For the loss of an arm, three hundred and 
twelve weeks. 

Foot. For the loss of a foot, two hundred and five 
weeks. 

Leg. For the loss of a leg, two hundred and eighty- 
eight weeks. 

Eye. For the loss of an eye, one hundred and twenty- 
eight weeks. 

Loss of use. Permanent loss of the use of a hand, 
arm, foot, leg, eye, thumb, finger, toe, or phalange, shall 
be considered as the equivalent of the loss of such hand, 



APPENDIX A 313 

arm, foot, leg, eye, thumb, finger, toe or phalange. [Clause 
amd by L. 1916, ch. 622.] 

Loss of fingers may constitute loss of the hand : Rockwell v. 
Lewis, 168 App. Div. 674; and loss of part of a finger, loss of 
the finger : Feinman v. Albert Manufacturing Co., 170 App. 
Div. 147. 

Amputations. Amputation between the elbow and the 
wrist shall be considered as the equivalent of the loss of a 
hand. Amputation between the knee and the ankle shall 
be considered as the equivalent of the loss of a foot. 
Amputation at or above the elbow shall be considered as 
the loss of an arm. Amputation at or above the knee 
shall be considered as the loss of the leg. 

The compensation for the foregoing specific injuries 
shall be in lieu of all other compensation, except the bene- 
fits provided in section thirteen of this chapter. 

In case of an injury resulting in serious facial or head 
disfigurement the commission may in its discretion, make 
such award or compensation as it may deem proper and 
equitable, in view of the nature of the disfigurement, but 
not to exceed three thousand five hundred dollars. [Clause 
added by L. 1916, ch. 622.] 

Compare also §11. The addition of this clause by L. 1916, 
ch. 622, should be read in the light of Shinnick v. Clover Farms 
Co., 169 App. Div. 236. 

Other cases. In all other cases in this class of disabil- 
ity, the compensation shall be sixty-six and two-thirds per 
centum of the difference between his average weekly 
wages and his wage-earning capacity thereafter in the 
same employment or otherwise, payable during the contin- 
uance of such partial disability, but subject to reconsid- 
eration of the degree of such impairment by the commis- 
sion on its own motion or upon application of any party 
in interest. 



314 COMPENSATION INSURANCE 

4. Temporary partial disability. In case of temporary 
partial disability, except the particular cases mentioned in 
subdivision three of this section, an injured employee 
shall receive sixty-six and two-thirds per centum of the 
difference between his average weekly wages and his 
wage earning capacity thereafter in the same employment 
or otherwise during the continuance of such partial dis- 
ability, but not to exceed when combined with his de- 
creased earnings the amount of wages he was receiving 
prior to the injury, and not to exceed in total the sum 
of three thousand five hundred dollars, except as other- 
wise provided in this chapter. [Subd. 4 am'd by L. 1916, 
ch. 622.] 

5. Limitation. The compensation payment under sub- 
divisions one, two and four and under subdivision three 
except in case of the loss of a hand, arm, foot, leg or 
eye, shall not exceed fifteen dollars per week nor be less 
than five dollars per week ; the compensation payment 
under subdivision three in case of the loss of a hand, arm, 
foot, leg or eye, shall not exceed twenty dollars per week 
nor be less than five dollars a week ; provided, however, 
that if the employee's wages at the time of injury are 
less than five dollars per week he shall receive his full 
weekly wages. 

Compare note to § 14. 

6. Previous disability. The fact that an employee has 
suffered previous disability or received compensation 
therefor shall not preclude him from compensation for a 
later injury nor preclude compensation for death result- 
ing therefrom ; but in determining compensation for the 
later injury or death his average weekly wages shall be 
such sum as will reasonably represent his yarning capacity 
at the time of the later injury, provided, however, that 
an employee who is suffering from a previous disability 



APPENDIX A 315 

shall not receive compensation for a later injury in excess 
of the compensation allowed for such injury when con- 
sidered by itself and not in conjunction with the previous 
disability. [Subd. 6 am d by L. 191 5, ch. 615.] 

This proviso, added by L. 1915, ch. 615, obviates the decision 
in Schwab v. Emporium Forestry Co., 167 App. Div. 614; 216 
N. Y. Rep. 712. L. 1916, ch. 622, has made special provision 
for this class of cases by the addition of subd. 7, following. 

7. Permanent total disability after permanent partial 
disability. If an employee who has previously incurred 
permanent partial disability through the loss of one hand, 
one arm, one foot, one leg, or one eye, incurs permanent 
total disability through the loss of another member or 
organ, he shall be paid, in addition to the compensation 
for permanent partial disability provided in this section 
and after the cessation of the payments for the prescribed 
period of weeks special additional compensation for the 
remainder of his life to the amount of sixty-six and two- 
thirds per centum of the average weekly wage earned by 
him at the time the total permanent disability was in- 
curred. Such additional compensation shall be paid out 
of a special fund created for such purpose in the follow- 
ing manner : The insurance carrier shall pay to the state 
treasurer for every case of injury causing death in which 
there are no persons entitled to compensation the sum 
of one hundred dollars. The state treasurer shall be the 
custodian of this special fund, and the commission shall 
direct the distribution thereof. [Subd. 7 added by L. 
1916, ch. 622.] 

§ 16. Death Benefits. — If the injury causes death, the 
compensation shall be known as a death benefit and shall 
be payable in the amount and to or for the benefit of the 
persons following: 



316 COMPENSATION INSURANCE 

i. Reasonable funeral expenses not exceeding one hun- 
dred dollars ; 

2. If there be a surviving wife (or dependent husband) 
and no child of the deceased under the age of eighteen 
years, to such wife (or dependent husband) thirty per 
centum of the average wages of the deceased during wid- 
owhood (or dependent widowerhood) with two years' 
compensation in one sum, upon remarriage ; and if there 
be surviving child or children of the deceased under the 
age of eighteen years, the additional amount of ten per 
centum of such wages for each such child until of the'age 
of eighteen years ; in case of the subsequent death of 
such surviving wife (or dependent husband) any surviv- 
ing child of the deceased employee, at the time under 
eighteen years of age, shall have his compensation in- 
creased to fifteen per centum of such wages, and the 
same shall be payable until he shall reach the age of eight- 
een years ; provided that the total amount payable shall 
in no case exceed sixty-six and two-thirds per centum of 
such wages. The commission may in its discretion re- 
quire the appointment of a guardian for the purpose of 
receiving the compensation of a minor child. In the ab- 
sence of such a requirement by the commission the ap- 
pointment of a guardian for such purposes shall not be 
necessary. [Subd. 2 amd by L. 1916, ch. 622.] 

In connection with the amendment of L. 1916, ch. 622, to this 
subdivision, regulating appointment of a guardian, compare 
Woodcock v. Walker, 170 App. Div. 4. 

3. If there be surviving child or children of the de- 
ceased under the age of eighteen years, but no surviving 
wife (or dependent husband) then for the support of each 
such child until of the age of eighteen years, fifteen per 
centum of the wages of the deceased, provided that the 



APPENDIX A 317 

aggregate shall in no case exceed sixty-six and two-thirds 
per centum of such wages. 

4. If there be no surviving wife (or dependent hus- 
band) or child under the age of eighteen years or if the 
amount payable to surviving wife (or dependent hus- 
band) and to children under the age of eighteen years 
shall be less in the aggregate than sixty-six and two-thirds 
per centum of the average wages of the deceased, then 
for the support of grandchildren or brothers and sisters 
under the age of eighteen years, if dependent upon the 
deceased at the time of the accident, fifteen per centum 
of such wages for the support of each such person until 
of the age of eighteen years ; and for the support of 
each parent, or grandparent, of the deceased if dependent 
upon him at the time of the accident, twenty-five per 
centum of such wages during such dependency. But in 
no case shall the aggregate amount payable under this 
subdivision exceed the difference between sixty-six and 
two-thirds per centum of such wages, and the amount 
payable as hereinbefore provided to surviving wife (or 
dependent husband) or for the support of surviving child 
or children. 

Any excess of wages over one hundred dollars a month 
shall not be taken into account in computing compensa- 
tion under this section. All questions of dependency 
shall be determined as of the time of the accident. [Subd. 
4 amd by L. 1916, ch. 622.] 

The insertion by L. 1916, ch. 622, of the words "If there be no 
surviving wife (or dependent husband) or child under the age 
of eighteen years or" confirms the decision in Friscia v. Drake 
Bros. Co., 167 App. Div. 496, which decision also holds that par- 
ents may be dependent upon the wages of minor children. L. 
1916, ch. 622, increases the amount payable to parent or grand- 
parent. 

Dependents supported by the decedent employee voluntarily, 



318 COMPENSATION INSURANCE 

partially or indirectly, are entitled to death benefits : Walz v. 
Holbrook, Cabot & Rollins Corp., 170 App. Div. 6. 

A ruling of the State Industrial Commission that a claimant 
is dependent, if supported by any evidence, is final and non- 
reviewable by the courts : Hendricks v. Seeman Bros., 170 App. 
Div. .133. For a ruling denying a mother's dependency, see 
Williams v. Coney Island Construction Co., S. D. R., vol. 6, p. 
346. 

In computing wages as the basis of benefits to the dependents 
of a deceased minor, allowance may be made under § 14, subd. 5, 
for the minor's expectation of wage increase : Kilberg v. Vitch, 
171 App. Div. 89. 

§ 17. Aliens. — Compensation under this chapter to 
aliens not residents (or about to become nonresidents) 
of the United States or Canada, shall be the same in 
amount as provided for residents, except that dependents 
in any foreign country shall be limited to surviving wife 
and child or children, or, if there be no surviving wife 
or child or children, to surviving father or mother, or 
grandfather or grandmother, whom the employee has sup- 
ported, either wholly or in part, for the period of one year 
prior to the date of the accident, and except that the 
commission may, at its option, or upon the application of 
the insurance carrier, shall, commute all future install- 
ments of compensation to be paid to such aliens, by pay- 
ing or causing to be paid to them one-half of the com- 
muted amount of such future installments of compensa- 
tion as determined by the commission. [As amd by L. 
1916, ch. 622.] 

Compare also § 25. For an account of the Commission's 
practice relative to lump sum awards, see monthly Bulletin of 
the State Industrial Commission, February, 1916, no. 5, pp. 2, 3. 

§ 18. Notice of Injury. — Notice of an injury for 
which compensation is payable under this chapter shall 
be given to the commission and to the employer within 



APPENDIX A 319 

ten days after disability, and also in case of the death 
of the employee resulting from such injury, within thirty 
days after such death. Such notice may be given by any 
person claiming to be entitled to compensation, or by 
some one in his behalf. The notice shall be in writing, 
and contain the name and address of the employee and 
state in ordinary language the time, place, nature and 
cause of the injury, and be signed by him or by a person 
on his behalf or, in case of death, by any one or more of 
his dependents or by a person in their behalf. It shall be 
given to the commission by sending it by mail, by regis- 
tered letter, addressed to the commission at its office. 
It shall be given to the employer by delivering it to him 
or sending it by mail, by registered letter, addressed to 
the employer at his or its last known place of residence ; 
provided that, if the employer be a partnership then such 
notice may be so given to any one of the partners, and 
if the employer be a corporation, then such notice may be 
given to any agent or officer thereof upon whom legal 
process may be served, or any agent in charge of the busi- 
ness in the place where the injury occurred. The failure 
to give such notice, unless excused by the commission 
either on the ground that notice for some sufficient rea- 
son could not have been given, or on the ground that the 
state fund, insurance company, or employer, as the case 
may be, has not been prejudiced thereby, shall be a bar to 
any claim under this chapter. 

In regard to evidence of accidental injury, §§ 18, 21 and Hi 
are to be read together. Instances of the Commission's excuse 
of the employer for failure to give timely notice are : Rist v. 
Larkin & Sangster, S. D. R., vol. 5, p. 381, and Birn v. Bradley 
Contracting Co., S. D. R., vol. 6, p. 319; instances of its 
refusal to excuse are : Opitz v. Tietze, S. D. R., vol. 6, p. 347, 
and Graf v. Brooklyn Rapid Transit Co., S. D. R., no. 37, 
p. 105. 



320 COMPENSATION INSURANCE 

§ 19. Medical Examination. — An employee injured 
claiming or entitled to compensation under this chapter 
shall, if requested by the commission, submit himself 
for medical examination at a time, and from time to time, 
at a place reasonably convenient for the employee, and 
as may be provided by the rules of the commission. If 
the employee or the insurance carrier request he shall be 
entitled to have a physician or physicians of his own selec- 
tion to be paid by him present to participate in such 
examination. If an employee refuse to submit himself to 
examination, his right to prosecute any proceeding under 
this chapter shall be suspended, and no compensation shall 
be payable, for the period of such refusal. 

§ 20. Determination of Claims for Compensation. 
— At any time after the expiration of the first fourteen 
days of disability on the part of an injured employee, 
or at any time after his death, a claim for compensation 
may be presented to the employer and if rejected or if 
within ten days after presentation, a report containing 
an agreement for compensation be not made and filed with 
the commission as provided by this section, the claim may 
be presented to the commission. The commission shall 
have full power and authority to determine all questions 
in relation to the payment of claims presented to it for 
compensation under the provisions of this chapter. The 
commission shall make or cause to be made such investi- 
gations as it deems necessary, and upon application of 
either party, shall order a hearing, and within thirty days 
after a claim for compensation is submitted under this 
section, or such hearing closed, shall make or deny an 
award, determining such claim for compensation, and file 
the same in the office of the commission, together with 
a statement of its conclusions of fact and rulings of law. 
The commission may before making an award, require 



APPENDIX A 321 

the claimant to appear before an arbitration committee 
appointed by it and consisting of one representative of 
employees, one representative of employers, and either a 
member of the commission or a person specially deputized 
by the commission to act as chairman, before which the 
evidence in regard to the claim shall be adduced and by 
which it shall be considered and reported upon. Imme- 
diately after such filing the commission shall send to the 
parties a copy of the decision. Upon a hearing pursuant 
to this section either party may present evidence and be 
represented by counsel. The decision of the commission 
shall be final as to all questions of fact, and, except as 
provided in section twenty-three, as to all questions of 
law. When a claim is presented to an employer, and the 
employer and employee, or in case of death, his principal 
dependent, enter into an agreement for the payment of 
compensation therefor pursuant to this chapter, a joint 
report of such claim containing such agreement shall be 
made to the commission upon a form prepared by it and 
signed by the employer and employee, or in case of death 
his principal dependent. The commission shall examine 
such report and approve the same when the terms are 
strictly in accordance with this chapter and such approval 
shall constitute an award. However, the commission may 
make an award in the manner provided in this section in 
any case, and if the terms of the award vary from the 
joint report, the employer shall comply with the award. 
In case of unfair dealing or of bad faith on the part of 
the employer under this section, the commission may im- 
pose a penalty of not more than ten per centum of the 
award. [As am'd by L. 1915, ch. 167.] 

Even when the evidence is meagre, the court holds that it 
should not interfere with a decision of the Commission. Powley 
v. Vivian & Co., 169 App. Div. 177. 

Relative to court review, compare §§ 23 and 68. 



322 COMPENSATION INSURANCE 

For an instance of modification of an agreement by the Com- 
mission, compare Rudewicz v. Wendell & Evans Co., S. D. R., 
vol. 6, p. 408. 

§ 20-a. Payment of Moneys in Advance of Award 
by Commission. — Any employer shall upon the making of 
the agreement provided for in section twenty advance to 
any injured employee or to the principal dependent of a 
deceased employee, the payment or payments provided for 
in the agreement, in return for which he shall receive a 
receipt on a form supplied by the commission and signed 
by the person receiving the money, which receipt shall 
specifically state in what capacity the signer acted while 
so receiving such money ; such receipt shall be forwarded 
to the commission within forty-eight hours after date 
of its issuance and the sum stated on its face shall be 
returned to said employer as provided in section twenty- 
five. 

Prior to the making of said agreement or in the event 
of no agreement, any employer may at his option advance 
to any injured employee or to the principal dependent of a 
deceased employee any sum of money, in return for which 
he shall receive a receipt on a form supplied by the com- 
mission and signed by the person receiving the money, 
which receipt shall specifically state in what capacity the 
signer acted while so receiving such money ; such receipt 
shall be forwarded to the commission within forty-eight 
hours after date of its issuance. Should any agreement 
or award be made the sum so stated on the face of the 
receipt shall be credited to the payment under the award 
or agreement and shall be repaid as hereinbefore pro- 
vided. Any money so advanced shall be at the employer's 
risk. [Added by L. 1915, ch. 168.] 

§ 21. Presumptions. — In any proceeding for the en- 
forcement of a claim for compensation under this chapter, 



APPENDIX A 323 

it shall be presumed in the absence of substantial evidence 
to the contrary 

i. That the claim comes within the provisions of this 
chapter ; 

2. That sufficient notice thereof was given ; 

3. That the injury was not occasioned by the willful 
intention of the injured employee to bring about the 
injury or death of himself or of another; 

4. That the injury did not result solely from the in- 
toxication of the injured employee while on duty. 

The constitutionality of the presumption in subd. 1 is upheld in 
McQueeney v. Sutphen & Myer, 167 App. Div. 528. 

Defendant must offer evidence to the Commission; otherwise 
the claim is presumptively legal : McQueeney v. Sutphen & Myer, 
167 App. Div. 528; Kohler v. Frohmann, 167 App. Div. 533; 
Powley v. Vivian & Co., 169 App. Div. 177. 

The presumptions of § 21 are as operative and binding in the 
court upon appeal as in the Commission : Rheinwald v. Builders' 
Brick & Supply Co., 168 App. Div. 433 ; compare also White 
v. N. Y. Central & H. R. R. R. Co., S. D. R, vol. 2, p. 477, 
as afBrmed by the courts without opinion, 169 App. Div. 903 ; 
216 N. Y. 653. The Commission may not presume that an acci- 
dent happened : Hyland v. Winant, S. D. R., vol. 6, p. 304. 

§ 22. Modification of Award. — Upon its own motion 
or upon the application of any party in interest, on the 
ground of a change in conditions, the commission may 
at any time review any award, and, on such review, may 
make an award ending, diminishing or increasing the 
compensation previously aw r arded, subject to the maxi- 
mum or minimum provided in this chapter, and shall state 
its conclusions of fact and rulings of law, and shall imme- 
diately send to the parties a copy of the award. No such 
review shall affect such award as regards any moneys 
already paid. 

Compare § 74. 



SM COMPENSATION INSURANCE 

§ 23. Appeals from the Commission. — An award or 
decision of the commission shall be final and conclusive 
upon all questions within its jurisdiction, as against the 
state fund or between the parties, unless within thirty 
days after a copy of such award or decision has been sent 
to the parties, an appeal be taken to the appellate divi- 
sion of the supreme court of the third department. The 
commission may also, in its discretion, on the application 
of either party, certify to such appellate division of the 
supreme court, questions of law involved in its decision. 
Such appeals and the questions so certified shall be heard 
in a summary manner and shall have precedence over 
all other civil cases in such court. The commission shall 
be deemed a party to every such appeal, and the attorney- 
general, without extra compensation, shall represent the 
commission thereon. An appeal may also be taken to 
the court of appeals in all cases where the decision of the 
appellate division is not unanimous and by the consent 
of the appellate division or a judge of the court of appeals 
where the decision of the appellate division is unanimous 
in the same manner and subject to the same limitations 
not inconsistent herewith as is now provided in civil ac- 
tions. It shall not be necessary to file exceptions to the 
rulings of the commission. The commission shall not 
be required to file a bond upon an appeal by it to the 
court of appeals. Otherwise such appeals shall be sub- 
ject to the law and practice applicable to appeals in civil 
actions. Upon the final determination of such an appeal, 
the commission shall make an award or decision in ac- 
cordance therewith. [As am'd by L. 1916, ch. 622.] 

Prior to amendment of § 23 by L. 1916, ch. 622, an employer in- 
sured in the state fund could not appeal from the Commission to 
the courts: Crockett v. International Railway Co., 170 App. Div. 
122. The amendment of § 23 by L. 1916, ch. 622, regulating 
appeals from the Appellate Division to the Court of Appeals may 



APPENDIX A 325 

be read in connection with Harnett v. Steen Co., 216 N. Y. 101. 
The law governing appeals in civil actions is the Code of Civil 
Procedure, §§ 190, 191, as based on the Constitution of New 
York, Art. 6, §§ 1, 9. The amendment relative to filing of 
exceptions, etc., is in line with the decision in Kenny v. Union 
Railway Co., 166 App. Div. 497. The right of appeal is restricted 
by the sentence in § 20, which declares : "The decision of the 
Commission shall be final as to all questions of fact, and except 
as provided in section twenty-three, as to all questions of law." 
For the right of the courts to review the evidence in compensa- 
tion cases, compare note to § 68. 

§ 24. Costs and Fees. — If the commission or the court 
before which any proceedings for compensation or con- 
cerning an award of compensation have been brought, 
under this chapter, determines that such proceedings have 
not been so brought upon reasonable ground, it shall 
assess the whole cost of the proceeding upon the party 
who has so brought them. Claims for legal services in 
connection with any claim arising under this chapter, and 
claims for services or treatment rendered or supplies fur- 
nished pursuant to section thirteen of this chapter, shall 
not be enforceable unless approved by the commission. 
If so approved, such claim or claims shall become a lien 
upon the compensation awarded, but shall be paid there- 
from only in the manner fixed by the commission. 

See also § 13. 

A physician cannot maintain an action against an employer 
under an employee's assignment of compensation for medical 
services : Bloom v. Jaffe, 94 Misc. 222. 

§ 25. Compensation, How Payable. — Compensation 
under the provisions of this chapter shall be payable peri- 
odically by the employer, in accordance with the method 
of payment of the wages of the employee at the time of 
his injury or death, and shall be so provided for in any 
award ; but the commission may determine that any pay- 
22 



326 COMPENSATION INSURANCE 

ments may be made monthly or at any other period, as 
it may deem advisable. The state or insurance corpora- 
tion in which an employer is insured shall, within ten 
days after demand by such employer and on the presenta- 
tion of evidence of payment of compensation in accord- 
ance with this chapter, reimburse the employer therefor. 
An injured employee, or in case of death his dependents 
or personal representative, shall give receipts for payment 
of compensation to the employer paying the same and 
such employer shall forward receipts therefor promptly 
to the commission. The commission, whenever it shall 
so deem advisable, may commute such periodical pay- 
ments to one or more lump sum payments to the in- 
jured employee or, in case of death, his dependents, pro- 
vided the same shall be in the interest of justice. [As 
am'd by L. 191 5, ch. 167.] 
Compare § 17. 

§ 26. Enforcement of Payment in Default. — If 
payment of compensation, or an installment thereof, due 
under the terms of an award, be not made by the em- 
ployer within ten days after the same is due, the insurance 
carrier shall be liable therefor and if not paid within ten 
days after demand by the injured employee or in case 
of death his dependents or by the commission, the amount 
of such payment shall constitute a liquidated claim for 
damages against the employer, self-insurer or insurance 
corporation, which with an added penalty of fifty per 
centum may be recovered in an action to be instituted by 
the commission in the name of the people of the state. 
An employer who negligently or intentionally defaults 
in payment of compensation in the first instance under this 
chapter shall be liable to a penalty of not more than ten 
per centum of the amount of such compensation, notwith- 
standing the fact that the insurance corporation or state 



APPENDIX A 327 

fund subsequently pays the compensation as provided in 
this section. If such default be made in the payment of 
an installment of compensation and the whole amount of 
such compensation be not due, the commission may, if the 
present value of such compensation be computable, de- 
clare the whole amount thereof due, and recover the 
amount thereof with the added penalties, as provided by 
this section. Any such action may be compromised by 
the commission or may be prosecuted to final judgment 
as, in the discretion of the commission, may best serve 
the interests of the persons entitled to receive the com- 
pensation or the benefits. Compensation recovered under 
this section shall be disbursed by the commission to the 
persons entitled thereto in accordance with the award. A 
penalty recovered pursuant to this section shall be paid 
into the state treasury, and be applicable to the expenses 
of the commission. 

In case of default by the employer in the payment of 
any compensation due under an award for the period of 
thirty days after payment is due and payable, any party 
in interest may file with the county clerk for the county 
in which the injury occurred, a certified copy of a deci- 
sion of the state industrial commission awarding com- 
pensation, or ending, diminishing or increasing compensa- 
tion previously awarded, from which no appeal has been 
taken within the time allowed therefor, and thereupon 
judgment must be entered in the supreme court by the 
clerk of such county in conformity therewith immediately 
upon the filing of such decision. Such decree or judg- 
ment shall be entered in the same manner and shall 
have the same effect and all proceedings in relation 
thereto shall thereafter be the same, as though said de- 
cree or judgment had been rendered in a suit duly 
heard and determined by the supreme court, except that 



328 COMPENSATION INSURANCE 

there shall be no appeal therefrom. The court upon the 
filing with it of a certified copy of a decision of the state 
industrial commission ending, diminishing or increasing 
compensation previously awarded, shall revoke or modify 
its prior decree or judgment so that it will conform to 
said decision. Neither the commission nor any party in 
interest shall be required to pay any fee to any public 
officer for filing or recording any paper or instrument 
executed in pursuance of this section. [As am'd by L. 
19 1 6, ch. 622.] 

§ 2j. Depositing Future Payments. — If an award 
under this chapter requires payment of compensation by 
an employer or an insurance corporation in periodical 
payments, and the nature of the injury makes it possible 
to compute the present value of all future payments 
with due regard for life contingencies, the commission 
may, in its discretion, at any time, compute and permit 
or require to be paid into the state fund an amount equal 
to the present value of all unpaid compensation for which 
liability exists, together with such additional sum as the 
commission may deem necessary for a proportionate pay- 
ment of expenses of administering the fund so created, 
such moneys to constitute an aggregate trust fund; and 
thereupon such employer or insurance corporation shall 
be discharged from any further liability under such 
award and payment of the same shall be assumed by the 
trust fund so created. 

The moneys so paid into this fund shall constitute an 
aggregate trust fund and shall be kept separate and 
apart from all other moneys of the state fund, and shall 
not be liable for any expenses of administration of the 
state fund other than the expenses involved in the ad- 
ministration of such trust fund. [As am'd by L. 1916, ch. 
622.] 



APPENDIX A 329 

§ 28. Limitation of Right to Compensation. — The 
right to claim compensation under this chapter shall be 
forever barred unless within one year after the injury 
or if death result therefrom, within one year after such 
death, a claim for compensation thereunder shall be filed 
with the commission. 

§ 29. Subrogation to Remedies of Employees. — if 
an employee entitled to compensation under this chapter 
be injured or killed by the negligence or wrong of an- 
other not in the same employ, such injured employee, or 
in case of death, his dependents, shall, before any suit 
or claim under this chapter, elect whether to take com- 
pensation under this chapter or to pursue his remedy 
against such other. Such election shall be evidenced in 
such manner as the commission may by rule or regula- 
tion prescribe. If he elect to take compensation under 
this chapter, the cause of action against such other shall 
be assigned to the state for the benefit of the state in- 
surance fund, if compensation be payable therefrom, and 
otherwise to the person, association, corporation, or insur- 
ance carrier liable for the payment of such compensation, 
and if he elect to proceed against such other, the state in- 
surance fund, person, association, corporation, or insur- 
ance carrier, as the case may be, shall contribute only the 
deficiency, if any, between the amount of the recovery 
against such other person actually collected, and the com- 
pensation provided or estimated by this chapter for such 
case. Such a cause of action assigned to the state may 
be prosecuted or compromised by the commission. A 
compromise of any such cause of action by the employee 
or his dependents at an amount less than the compensa- 
tion provided for by this chapter shall be made only with 
the written approval of the commission, if the deficiency 
of compensation would be payable from the state insur- 



330 COMPENSATION INSURANCE 

ance fund, and otherwise with the written approval of the 
person, association, corporation, or insurance carrier lia- 
ble to pay the same. Wherever an employee is killed by 
the negligence or wrong of another not in the same em- 
ploy and the dependents of such employee entitled to 
compensation under this chapter are minors, such elec- 
tion to take compensation and the assignment of the 
cause of action against such other and such notice of 
election to pursue a remedy against such other shall be 
made by such minor, or shall be made on behalf of such 
minor by a parent of such minor, or by his or her duly 
appointed guardian, as the commission may determine 
by rule in each case. [As am'd by L. 1916, ch. 622.] 

In Winter v. Doelger Brewing Co., May, 1916, the Supreme 
Court sustained an action of the employee against his employer 
as a third party, though the employer had secured compensation. 
The building where the accident, the collapse of an elevator, 
occurred, was owned by the employer but was entirely discon- 
nected with his place of business. 

An employee who has elected compensation and received an 
award is estopped from an action for damages : Miller v. New 
York Railways Co., 171 App. Div. 316. 

An employee may maintain an action for negligence without 
evidencing his election under this section, but failure so to do 
excludes him from deficiency compensation : Lester v. Otis Ele- 
vator Co., 169 App. Div. 613. 

Release of a third party by the injured employee, with or 
without consideration, does not debar the employee from com- 
pensation or the employer's insurance carrier from an action for 
negligence : Woodward v. Conklin & Son, Appellate Division, 
March, 1916. 

§ 30. Revenues or Benefits from Other Sources 
Not to Affect Compensation. — No benefits, savings or 
insurance of the injured employee, independent of the 
provisions of this chapter, shall be considered in deter- 
mining the compensation or benefits to be paid under this 



APPENDIX A 331 

chapter, except that, in case of the death of an employee 
of the state, a municipal corporation or any other political 
subdivision of the state, any benefit payable under a pen- 
sion system which is not sustained in whole or in part 
by the contributions of the employee, may be applied 
toward the payment of the death benefit provided by this 
chapter. [Section 30 am'd by L. 1914, ch. 316.] 

§ 31. Agreement for Contribution by Employee 
Void. — No agreement by an employee to pay any por- 
tion of the premium paid by his employer to the state 
insurance fund or to contribute to a benefit fund or 
department maintained by such employer or to the cost 
of mutual insurance or other insurance, maintained for 
or carried for the purpose of providing compensation as 
herein required, shall be valid, and any employer who 
makes a deduction for such purpose from the wages or 
salary of any employee entitled to the benefits of this 
chapter shall be guilty of a misdemeanor. 

§ 32. Waiver Agreements Void. — No agreement by 
an employee to waive his right to compensation under 
this chapter shall be valid. 

A contract provision by which each party exempts the other 
from all acts of fault or omission is ineffective : Powley v. 
Vivian & Co., 169 App. Div. 176. 

§ 33. Assignments; Exemptions. — Claims for com- 
pensation or benefits due under this chapter shall not be 
assigned, released or commuted except as provided by 
this chapter, and shall be exempt from all claims of 
creditors and from levy, execution and attachment or 
other remedy for recovery or collection of a debt, which 
exemption may not be waived. Compensation and bene- 
fits shall be paid only to employees or their dependents. 



332 COMPENSATION INSURANCE 

"Except as provided," compare § 29. 

Release of the employer by an administrator for a con- 
sideration does not debar dependents from compensation : 
Buell v. N. Y. C. & H. R. R. R. Co., S. D. R., vol. 6, pp. 361, 
377. See also note under § 29. 

An employee may not assign to his physician an award of com- 
pensation for medical treatment: Bloom v. Jaffe, 94 Misc. 222. 

§ 34. Preferences. — The right of compensation 
granted by this chapter and any awards made there- 
under shall have the same preference or lien without 
limit of amount against the assets of the employer as is 
now or hereafter may be allowed by law for a claim 
for unpaid wages for labor. [As am'd by L. 19 16, ch. 
622.] 

ARTICLE 3 

Security for Compensation 

Section 50. Security for payment of compensation. 

51. Posting of notice regarding compensation. 

52. Effect of failure to secure compensation. 

53. Release from all liability. 

54. The insurance contract. 

§ 50. Security for Payment of Compensation. — An 
employer shall secure compensation to his employees in 
one of the following ways : 

1. By insuring and keeping insured the payment of 
such compensation in the state fund, or 

2. By insuring and keeping insured the payment of 
such compensation with any stock corporation or mutual 
association authorized to transact the business of work- 
men's compensation insurance in this state. If insur- 
ance be so effected in such a corporation or mutual 
association the employer shall forthwith file with the 



APPENDIX A 333 

commission, in form prescribed by it, a notice specifying 
the name of such insurance corporation or mutual asso- 
ciation and such information regarding the policies as 
the commission may require. [Subd. 2 ani'd by L. 1916, 
ch. 622.] 

Mutual employers' liability and workmen's compensation cor- 
porations are governed by the insurance law, §§ 185-194, as added 
by L. 1913, ch. 832, and amended by L. 1915, ch. 506, and § 67, as 
added by L. 1914, ch. 16. 

3. By furnishing satisfactory proof to the commission 
of his financial ability to pay such compensation for him- 
self, in which case the commission may, in its discretion, 
require the deposit with the commission of securities 
of the kind prescribed in section thirteen of the insurance 
law, in an amount to be determined by the commission, 
to secure his liability to pay the compensation provided 
' in this chapter. The commission shall have the authority 
to revoke its consent furnished under this section at 
any time for good cause shown. 

If an employer fail to comply with this section, he shall 
be liable to a penalty [for the time] during which such 
failure continues of an amount equal to the pro rata 
premium which would have been payable for insurance 
in the state fund for such period of noncompliance to 
be recovered in an action brought by the commission. 

The commission may, in its discretion, for good cause 
shown, remit any such penalty, provided the employer 
in default secure compensation as provided in this sec- 
tion. [Subd. 3 am'd by L. 1914, ch. 316; and L. 1916, ch. 
622.] 

§ 51. Posting of Notice Regarding Compensation. 
— Every employer who has complied with section fifty 
of this chapter shall post and maintain in a conspicuous 
place or places in and about his place or places of busi- 



334 COMPENSATION INSURANCE 

ness typewritten or printed notices in form prescribed 
by the commission, stating the fact that he has complied 
with all the rules and regulations of the commission and 
that he has secured the payment of compensation to his 
employees and their dependents in accordance with the 
provisions of this chapter. 

§ 52. Effect of Failure to Secure Compensation. 
— Failure to secure the payment of compensation shall 
constitute a misdemeanor and have the effect of enabling 
the injured employee, or in case of death, his dependents 
or legal representatives, to maintain an action for dam- 
ages in the courts, as prescribed by section eleven of this 
chapter. [As am'd by L. 1916, ch. 622.] 

Compare note to § 11. 

§ 53. Release from All Liability. — An employer se- 
curing the payment of compensation by contributing pre- 
miums to the state fund shall thereby become relieved 
from all liability for personal injuries or death sustained 
by his employees, and the persons entitled to compensa- 
tion under this chapter shall have recourse therefor only 
to the state fund and not to the employer. An employer 
shall not otherwise be relieved from the liability for com- 
pensation prescribed by this chapter except by the pay- 
ment thereof by himself or his insurance carrier. 

Compare amendment to § 11, effected by L. 1916, ch. 622; com- 
pare also, on question of protection, Jensen v. Southern Pacific 
Co., 215 N. Y. 514; McQueeney v. Sutphen & Myer, 167 App. 
Div. 528; Crockett v. International Railway Co., 170 App. Div. 
122. 

§ 54. The Insurance Contract. — 1. Right of re- 
course to the insurance carrier. Every policy of insur- 
ance covering the liability of the employer for compensa- 
tion issued by a stock company or by a mutual associa- 



APPENDIX A 335 

tion authorized to transact workmen's compensation in- 
surance in this state shall contain a provision setting forth 
the right of the commission to enforce in the name of the 
people of the state of New York for the benefit of the 
person entitled to the compensation insured by the policy 
either by filing a separate application or by making the 
insurance carrier a party to the original application, the 
liability of the insurance carrier in whole or in part for 
the payment of such compensation; provided, however, 
that payment in whole or in part of such compensation 
by either the employer or the insurance carrier shall to the 
extent thereof be a bar to the recovery against the other 
of the amount so paid. 

2. Knowledge and jurisdiction of the employer ex- 
tended to cover the insurance carrier. Every such policy 
shall contain a provision that, as between the employee 
and the insurance carrier, the notice to or knowledge of 
the occurrence of the injury on the part of the employer 
shall be deemed notice or knowledge, as the case may be, 
on the part of the insurance carrier; that jurisdiction of 
the employer shall, for the purpose of this chapter, be 
jurisdiction of the insurance carrier and that the insur- 
ance carrier shall in all things be bound by and subject 
to the orders, findings, decisions or awards rendered 
against the employer for the payment of compensation 
under the provisions of this chapter. 

3. Insolvency of employer does not release the insur- 
ance carrier. Every such policy shall contain a provision 
to the effect that the insolvency or bankruptcy of the 
employer shall not relieve the insurance carrier from the 
payment of compensation for injuries or death sustained 
by an employee during the life of such policy. 

4. Limitation of indemnity agreements. Every con- 
tract or agreement of an employer the purpose of which 



336 COMPENSATION INSURANCE 

is to indemnify him from loss or damage on account 
of the injury of an employee by accidental means, or on 
account of the negligence of such employer or his officer, 
agent or servant, shall be absolutely void unless it shall 
also cover liability for the payment of the compensation 
provided for by this chapter. 

5. Cancellation of insurance contracts. No contract 
of insurance issued by an insurance carrier against lia- 
bility arising under this chapter shall be cancelled within 
the time limited in such contract for its expiration until 
at least ten days after a notice of cancellation of such 
contract, on a date specified in such notice, shall be filed 
in the office of the commission and also served on the 
employer. Such notice shall be served on the employer 
by delivering it to him or by sending it by mail, by reg- 
istered letter, addressed to the employer at his or its last 
known place of residence ; provided that, if the employer 
be a partnership, then such notice may be so given to 
any one of the partners, and if the employer be a cor- 
poration then the notice may be given to any agent or 
officer of the corporation upon whom legal process may 
be served. Provided, however, the right to cancellation 
of a policy of insurance in the state fund shall be exer- 
cised only for nonpayment of premiums. [Subd. 5 am'd 
by L. 1916, ch. 622.] 

Sections 54 and 20 are to be read together. The Commission 
has full jurisdiction of disputes between employer and insurer 
according to an opinion of the Attorney-General rendered August 
16, 1915. Compare McCaffrey v. Tager Contracting Co., S. D. 
R., vol. 5, p. 434; and Bloom v. Tilin & Bleek, S. D. R., vol. 5, 
p. 441. 

6. Any insurance carrier may issue policies, including 
with employees, employers who perform labor incidental 
to their occupations, such policies insuring to such em- 



APPENDIX A 337 

ployers the same compensations provided for their em- 
ployees, and at the same rates ; provided, however, that 
the estimation of their wage values, respectively, shall be 
reasonable and separately stated in and added to the valu- 
ation of their pay rolls upon which their premium is 
computed. The employer so insured shall have the same 
rights and remedies given an employee by this chapter. 
[Subd. 6 added by L. 1916, ch. 622.] 

ARTICLE 4 
State Workmen's Compensation Commission 

Section 60. State workmen's compensation commission.* 

61. Secretary, deputies and other employees.* 

62. Salaries and expenses. 

63. Office. 

64. Sessions of commission. 

65. Powers of individual commissioners and deputy com- 

missioners. 

66. Powers and duties of secretary. 

67. Rules. 

68. Technical rules of evidence or procedure not re- 

quired. 

69. Issue of subpoena; penalty for failure to obey. 

70. Recalcitrant witnesses punishable as for contempt. 

71. Fees and mileage of witnesses. 

72. Depositions. 

73. Transcript of stenographer's minutes ; effect as evi- 

dence. 

74. Jurisdiction of commission to be continuing. 

75. Report of commission. 

* §§ 60, 61, of the Workmen's Compensation Law were re- 
pealed, and the functions of the Workmen's Compensation Com- 
mission transferred to the newly created Industrial Commission, 
by L. 1915, ch. 674, §§ 2-8. For organization and functions 
of the Industrial Commission, compare Labor Law §§ 40-52C 



338 COMPENSATION INSURANCE 

76. Commission to furnish blank forms. 
yy. Expenses of administering commission. 

§ 62. Expenses. — The commission may make the nec- 
essary expenditure to obtain statistical and other infor- 
mation to establish classifications of employments with 
respect to hazards and risks. The expenses of the com- 
mission, including the premiums to be paid by the state 
treasurer for the bond to be furnished by him, shall be 
paid out of the state treasury upon vouchers signed by 
at least two commissioners. [As am'd by L. 191 5, ch. 

674.] 

§ 63. Office. — The commission shall keep and main- 
tain its principal office in the city of Albany, in rooms in 
the capitol assigned by the trustees of public buildings. 
The office shall be supplied with necessary office furniture, 
supplies, books, maps, stationery, telephone connections 
and other necessary appliances, at the expense of the 
state, payable in the same manner as other expenses of 
the commission. 

§ 64. Sessions of Commission. — The commission 
shall be in continuous session and open for the transac- 
tion of business during all business hours of every day 
excepting Sundays and legal holidays. All sessions shall 
be open to the public and may be adjourned, upon entry 
thereof in its records, without further notice. Whenever 
convenience of parties will be promoted or delay and 
expense prevented, the commission may hold sessions in 
cities other than the city of Albany. A party may appear 
before such commission and be heard in person or by 
attorney. Every vote and official act of the commission 
shall be entered of record, and the records shall contain 
a record of each case considered, and the award, decision 
or order made with respect thereto, and all voting shall 



APPENDIX A 839 

be by the calling of each commissioner's name by the 
secretary and each vote shall be recorded as cast. A ma- 
jority of the commission shall constitute a quorum. A 
vacancy shall not impair the right of the remaining com- 
missioners to exercise all the powers of the full commis- 
sion so long as a majority remains. 

§ 65. Powers of Individual Commissioners and 
Deputy Commissioners. — Any investigation, inquiry or 
hearing which the commission is authorized to hold or 
undertake may be held or taken by or before any com- 
missioner or deputy commissioner, and the award, deci- 
sion or order of a commissioner or deputy commissioner, 
when approved and confirmed by the commission and or- 
dered filed in its office, shall be deemed to be the award, 
decision or order of the commission. Each commissioner 
and deputy shall, for the purposes of this chapter, have 
power to administer oaths, certify to official acts, take 
depositions, issue subpoenas, compel the attendance of 
witnesses and the production of books, accounts, papers, 
records, documents and testimony. The commission may 
authorize any deputy to conduct any such investigation, 
inquiry or hearing, in which case he shall have the power 
of a commissioner in respect thereof. 

§ 66. Powers and Duties of Secretary. — The secre- 
tary of the commission shall : 

1. Maintain a full and true record of all proceedings of 
the commission, of all documents or papers ordered filed 
by the commission, of decisions or orders made by a com- 
missioner or deputy commissioner, and of all decisions or 
orders made by the commission or approved and con- 
firmed by it and ordered filed, and he shall be responsible 
to the commission for the safe custody and preservation 
of all such documents at its office ; 



340 COMPENSATION INSURANCE 

2. Have power to administer oaths in all parts of the 
state, so far as the exercise of such power is properly 
incident to the performance of his duty or that of the 
commission ; 

3. Designate, from time to time, with the approval of 
the commission, one of the clerks appointed by the com- 
mission to exercise the powers and duties of the secretary 
during his absence ; 

4. Under the direction of the commission, have gen- 
eral charge of its office, superintend its clerical business, 
and perform such other duties as the commission may 
prescribe. 

The duties prescribed by this section devolve upon the secre- 
tary of the Industrial Commission under the Labor Law, § 49. 

§ 67. Rules. — The commission shall adopt reasonable 
rules, not inconsistent with this chapter, regulating and 
providing for 

1. The kind and character of notices, and the service 
thereof, in case of accident and injury to employees; 

2. The nature and extent of the proofs and evidence, 
and the method of taking and furnishing the same, to 
establish the right to compensation ; 

3. The forms of application for those claiming to be 
entitled to compensation ; 

4. The method of making investigations, physical ex- 
aminations and inspections; 

5. The time within which adjudications and awards 
shall be made ; 

6. The conduct of hearings, investigations and in- 
quiries ; 

7. The giving of undertakings by all subordinates who 
are empowered to receive and disburse moneys, to be 



APPENDIX A 341 

approved by the attorney-general as to form and by the 
comptroller as to sufficiency ; 

8. Carrying into effect the provisions of this chapter. 

9. The collection, maintenance and disbursement of the 
state insurance fund. [Punctuation of § 67 amd by L. 
1916, ch. 622.] 

§ 68. Technical Rules of Evidence or Procedure 
Not Required. — The commission or a commissioner or 
deputy commissioner in making an investigation or in- 
quiry or conducting a hearing shall not be bound by com- 
mon law or statutory rules of evidence or by technical or 
formal rules of procedure, except as provided by this 
chapter ; but may make such investigation or inquiry or 
conduct such hearing in such manner as to ascertain the 
substantial rights of the parties. 

Section 67, above, requires the Commission to adopt reason- 
able rules of evidence, not inconsistent with the Workmen's 
Compensation Law. 

The courts have repeatedly emphasized the independence of 
precedents permitted and suggested by this section : Rheinwald 
v. Builders' Brick & Supply Co., 168 App. Div. 425 ; Kenny v. 
Union Railway Co., 166 App. Div. 497; Carroll v. Knickerbocker 
Ice Co., 169 App. Div. 450; Dale v. Saunders Bros., 171 App. 
Div. 528; 218 N. Y. 59. 

Section 20 makes the decisions of the Commission "final as to 
all questions of fact." For the jurisdiction of the courts to re- 
view the evidence in compensation cases, see Goldstein v. Centre 
Iron Works, 167 App. Div. 526 ; Carroll v. Knickerbocker Ice 
Co., 169 App. Div. 450; Gardner v. Horseheads Construction Co., 
171 App. Div. 66; Rhyner v. Hueber Building Co., 171 App. 
Div. 58. The opinion in the Carroll case admits the validity of 
hearsay evidence ; the opinion in the Rhyner case declares that 
"if there are no facts in the case * * * a question of law. 
arises" which gives the courts jurisdiction. 

§ 69. Issue of Subpoena; Penalty for Failure to 

Obey.- — A subpoena shall be signed and issued by a com- 
23 



342 COMPENSATION INSURANCE 

missioner, a deputy commissioner or by the secretary of 
the commission and may be served by any person of 
full age in the same manner as a subpoena issued out of 
a court of record. If a person fail, without reasonable 
cause, to attend in obedience to a subpoena, or to be sworn 
or examined or answer a question or produce a book or 
paper, or to subscribe and swear to his deposition after 
it has been correctly reduced to writing, he shall be guilty 
of a misdemeanor. 

§ 70. Recalcitrant Witnesses Punishable as for 
Contempt. — If a person in attendance before the com- 
mission or a commissioner or deputy commissioner re- 
fuses, without reasonable cause, to be examined, or to 
answer a legal and pertinent question or to produce a 
book or paper, when ordered so to do by the commission 
or a commissioner or deputy commissioner, the commis- 
sion may apply to a justice of the supreme court upon 
proof by affidavit of the facts for an order returnable 
in not less than two nor more than five days directing 
such person to show cause before the justice who made 
the order, or any other justice of the supreme court, 
why he should not be committed to jail. Upon the return 
of such order the justice shall examine under oath such 
person and give him an opportunity to be heard ; and if 
the justice determine that he has refused without reason- 
able cause or legal excuse to be examined or to answer a 
legal and pertinent question, or to produce a book or paper 
which he was ordered to bring, he may forthwith, by war- 
rant, commit the offender to jail, there to remain until 
he submits to do the act which he was so required to do 
or is discharged according to law. 

§ 71. Fees and Mileage of Witnesses. — Each wit- 
ness who appears in obedience to a subpoena before the 
commission or a commissioner or deputy commissioner, 



APPENDIX A 343 

or person employed by the commission to obtain the re- 
quired information, shall receive for his attendance the 
fees and mileage provided for witnesses in civil cases in 
the supreme court, which shall be audited and paid 
from the state treasury in the same manner as other ex- 
penses of the commission. A witness subpoenaed at the 
instance of a party other than the commission, a commis- 
sioner, deputy commissioner or person acting under the 
authority of the commission shall be entitled to fees or 
compensation from the state treasury, if the commission 
certify that his testimony was material to the matter in- 
vestigated, but not otherwise. 

§ 72. Depositions. — The commission may cause depo- 
sitions of witnesses residing within or without the state 
to be taken in the manner prescribed by law for like 
depositions in civil actions in the supreme court. 

§ 73. Transcript of Stenographer's Minutes ; Ef- 
fect as Evidence. — A transcribed copy of the testimony, 
evidence and procedure or of a specific part thereof, or 
of the testimony of a particular witness or of a specific 
part thereof, on any investigation, by a stenographer ap- 
pointed by the commission, being certified by such stenog- 
rapher to be a true and correct transcript thereof and 
to have been carefully compared by him with his original 
notes, may be received in evidence by the commission 
with the same effect as if such stenographer were present 
and testified to the facts so certified, and a copy of such 
transcript shall be furnished on demand to any party 
upon payment of the fee provided for a transcript of 
similar minutes in the supreme court. 

§ 74. Jurisdiction of Commission to be Continuing. 
— The power and jurisdiction of the commission over 
each case shall be continuing, and it may, from time to 



344 COMPENSATION INSURANCE 

time, make such modification or change with respect to 
former findings or orders relating thereto, as in its opin- 
ion may be just. 

Compare § 22. 

§ 75. Report of Commission. — Annually on or before 
the first day of February, the commission shall make a 
report to the legislature, which shall include a statement 
of the number of awards made by it and the causes of 
the accidents leading to the injuries for which the awards 
were made, a detailed statement of the expenses of the 
commission, the condition of the state insurance fund, to- 
gether with any other matter which the commission deems 
proper to report to the legislature, including any recom- 
mendations it may desire to make. 

L. 19 16, ch. 622, although including it, made no change in this 
section. 

§ 76. Commission to Furnish Blank Forms. — The 
commission shall prepare and cause to be distributed so 
that the same may be readily available blank forms of 
application for compensation, notice to employers, proofs 
of injury or death, of medical or other attendance or 
treatment, of employment and wage earnings, and for 
such other purposes as may be required. Insured em- 
ployers shall constantly keep on hand a sufficient supply 
of such blanks. 

§ yy. Expenses of Administering Commission. — As 
soon as practicable after July first, nineteen hundred and 
seventeen, and annually thereafter, the commission shall 
ascertain the total amount of its expenses incurred dur- 
ing the preceding fiscal year, in connection with the ad- 
ministration of the workmen's compensation law, and 
shall thereupon assess upon and collect from each insur- 



APPENDIX A 345 

ance carrier, including the state insurance fund, the 
proportion of such expense that the total compensation 
or payments made by such carrier in such year bore to 
the total compensation or payments made by all insurance 
carriers. The amounts so secured shall be transferred to 
the state treasury to reimburse it for this portion of the 
expense of administering this chapter. [Added by L. 
1916, ch. 622.] 

Compare § 94. Under §§ 26 and no all penalties imposed by 
the Workmen's Compensation Law are applicable to the expenses 
of the Commission. For references to penalties, see note to 
§ no. 

ARTICLE 5 
State Insurance Fund 

Section 90. Creation of state fund. 

91: State treasurer custodian of fund. 

92. Surplus and reserve. 

93. Investment of surplus or reserve. 

94. Administration expense. 

95. Classification of risks and adjustment of premiums. 

96. Associations for accident prevention. 

97. Requirements in classifying employment and fixing 

and adjusting premium rates. 

98. Time of payment of premiums. 

99. Action for collection in case of default. 

100. Withdrawal from fund. 

101. Audit of payrolls. 

102. Falsification of payroll. 

103. Willful misrepresentation. 

104. Inspections. 

105. Disclosures prohibited. 

106. Reports of state insurance fund; examination by in- 

surance department. 

§ 90. Creation of State Fund. — There is hereby cre- 
ated a fund to be known as "the state insurance fund," 



346 COMPENSATION INSURANCE 

for the purpose of insuring employers against liability 
under this chapter and of assuring to the persons entitled 
thereto the compensation provided by this chapter. Such 
fund shall consist of all premiums received and paid 
into the fund, of property and securities acquired by and 
through the use of moneys belonging to the fund and of 
interest earned upon moneys belonging to the fund and 
deposited or invested as herein provided. Such fund 
shall be administered by the commission without liability 
on the part of the state beyond the amount of such 
fund. Such fund shall be applicable to the payment of 
losses sustained on account of insurance and to the 
payment of expenses in the manner provided in this 
chapter. 

§ 91. State Treasurer Custodian of Fund. — The 
state treasurer shall be the custodian of the state insur- 
ance fund ; and all disbursements therefrom shall be 
paid by him upon vouchers authorized by the commis- 
sion and signed by any two members thereof. The 
state treasurer shall give a separate and additional bond 
in an amount to be fixed by the governor and with 
sureties approved by the state comptroller conditioned 
for the faithful performance of his duty as custodian of 
the state fund. The state treasurer may deposit any 
portion of the state fund not needed for immediate use, 
in the manner and subject to all the provisions of law 
respecting the deposit of other state funds by him. In- 
terest earned by such portion of the state insurance fund 
deposited by the state treasurer shall be collected by him 
and placed to the credit of the fund. 

§ 92. Surplus and Reserves. — Ten per centum of the 
premiums collected from employers insured in the fund 
shall be set aside by the commission for the creation of 
a surplus until such surplus shall amount to the sum 



APPENDIX A 347 

of one hundred thousand dollars, and thereafter five per 
centum of such premiums, until such time as in the judg- 
ment of the commission such surplus shall be sufficiently 
large to cover the catastrophe hazard. The commission 
shall also set up and maintain reserves adequate to meet 
anticipated losses and carry all claims and policies to 
maturity, which reserves shall be computed in accordance 
with such rules as shall be approved by the superintendent 
of insurance. [As amd by L. 1916, ch. 622.] 

§ 93. Investment of Surplus or Reserve. — Any of 
the surplus or reserve funds belonging to the state insur- 
ance fund may, pursuant to a resolution of the commis- 
sion approved by the superintendent of insurance, be in- 
vested in or loaned on the pledge of any of the securities 
in which deposits of insurance corporations are required 
to be invested pursuant to section thirteen of the insur- 
ance law, or in the public stocks or bonds of any one of 
the United States, or in bonds and mortgages on im- 
proved unencumbered real property in this state worth 
fifty per centum more than the amount loaned thereon. 
Al! such securities or evidences of indebtedness shall be 
placed in the hands of the state treasurer who shall be 
the custodian thereof. He shall collect the principal and 
interest thereof, when due, and pay the same into the 
state insurance fund. The state treasurer shall pay all 
vouchers drawn on the state insurance fund for the mak- 
ing of such investments when signed by two members of 
the commission, upon delivery of such securities or evi- 
dences of indebtedness to him, when there is attached to 
such vouchers a certified copy of the resolution of the 
commission authorizing the investment. The commission 
may, upon like resolution approved by the superintendent 
of insurance, sell any of such securities. [As am'd by L. 
1916, ch. 622.] 



348 COMPENSATION INSURANCE 

§ 94. Administration Expense. — The entire expense 
of administering the state insurance fund shall be paid in 
the first instance by the state, out of moneys appro- 
priated therefor. In the month of July, nineteen hun- 
dred and seventeen, and annually thereafter in such 
month, the commission shall ascertain the just amount 
incurred by the commission during the preceding fiscal 
year, in the administration of the state insurance fund, 
and shall refund such amount to the state treasury. If 
there be employees of the commission other than the com- 
missioners themselves and the secretary whose time is 
devoted partly to the general work of the commission 
and partly to the work of the state insurance fund, and 
in case there is other expense which is incurred jointly 
on behalf of the general work of the commission and 
the state insurance fund, an equitable apportionment of 
the expense shall be made for such purpose and the part 
thereof which is applicable to the state insurance fund 
shall be chargeable thereto. [As anid by L. .1916, ch. 
622.] 

Under §§ 26 and no all penalties imposed by the Workmen's 
Compensation Law are applicable to the expenses of the Com- 
mission. 

§ 95. Classification of Risks and Adjustment of 
Premiums. — Employments coming under the provisions 
of this chapter shall be divided for the purposes of the 
state fund, into the groups set forth in section two of 
this chapter. Separate accounts shall be kept of the 
amounts collected and expended in respect to each such 
group for convenience in determining equitable rates ; 
but for the purpose of paying compensation the state 
fund shall be deemed one and indivisible. The commis- 
sion shall have power to rearrange any of the groups 
set forth in section two by withdrawing any employment 



APPENDIX A 349 

embraced in it and transferring it wholly or in part to 
any other group, and from such employments to set up 
new groups at its discretion. The commission shall 
determine the hazards of the different classes compos- 
ing each group and fix the rates of premiums therefor 
based upon the total payroll and number of employees in 
each of such classes of employment at the lowest pos- 
sible rate consistent with the maintenance of a solvent 
state insurance fund and the creation of a reasonable 
surplus and reserve; and for such purpose may adopt a 
system of schedule rating in such a manner as to take 
account of the peculiar hazard of each individual risk. 

The limitations upon the power of the Commission to group 
a single employer by himself for rating and dividend purposes 
have been set forth in an opinion of the Attorney-General, S. 
D. R., vol. 6, p. 476, January 26, 1916. 

Under § 67 of the Insurance Law, added by L. 1914, ch. 16, 
risks and premiums of workmen's compensation, other than those 
of the state fund, must be filed by private insurance corpora- 
tions or associations with the superintendent of insurance and 
must be approved by him before going into effect. 

§ 96. Associations for Accident Prevention. — The 
employers in any of the groups described in section two 
or established by the commission may with the approval 
of the commission form themselves into an association 
for accident prevention, and may make rules for that 
purpose. If the commission is of the opinion that an 
association so formed sufficiently represents the employ- 
ers in such group, it may approve such rules, and when 
so approved and approved by the industrial board of the 
labor department they shall be binding on all employers 
in such group. If such an approved association appoint 
an inspector or expert for the purpose of accident preven- 
tion, the commission may at its discretion provide in 
whole or in part for the payment of the remuneration 



350 COMPENSATION INSURANCE 

and expenses of such inspector or expert, such payment 
to be charged in the accounting to such group. Every 
such approved association may make recommendations to 
the commission concerning the fixing of premiums for 
classes of hazards, and for individual risks within such 
group. 

For the powers and duties of directors of mutual employers' 
liability and workmen's compensation corporations relative to 
accident prevention, compare Insurance Law, § 193. 

§ 97. Requirements in Classifying Employment 
and Fixing and Adjusting Premium Rates. — The fol- 
lowing requirements shall be observed in classifying em- 
ployments and fixing and adjusting premium rates: 

1. The commission shall keep an accurate account of 
the money paid in premiums by each of the several classes 
of employments or industries, and the disbursements on 
account of injuries and deaths of employees thereof, in- 
cluding the setting up of reserves adequate to meet, antici- 
pated losses and to carry the claims to maturity, and 
also, on account of the money received from each indi- 
vidual employer and the amount disbursed from the state 
insurance fund on account of injuries and death of the 
employees of such employer, including the reserves so set 
up; 

2. On January first, nineteen hundred and fifteen, and 
every fifth year thereafter, and at such other times as the 
commission, in its discretion, may determine, a readjust- 
ment of the rate shall be made for each of the several 
groups of employment or industries and of each hazard 
class therein, which, in the judgment of the commission, 
shall have developed an average loss ratio, in accordance 
with the experience of the commission in the adminis- 
tration of the law as shown by the accounts kept as pro- 
vided herein ; 



APPENDIX A 351 

3. If any such accounting show an aggregate balance 
(deemed by the commission to be safely and properly 
divisible) remaining to the credit of any class of employ- 
ment or industry, after the amount required shall have 
been credited to the surplus and reserve funds and after 
the payment of all awards for injury or death lawfully 
chargeable against the same, the commission may in its 
discretion credit to each individual member of such group, 
who shall have been a subscriber to the state insurance 
fund for a period of six months or more prior to the time 
of such readjustment, and whose premium or premiums 
exceed the amount of the disbursements from the fund on 
account of injuries or death of his employees during such 
period, on the installment or installments of premiums 
next due from him such proportion of such balance as the 
amount of his prior paid premiums sustains to the whole 
amount of such premiums paid by the group to which 
he belongs since the last readjustment of rates. In the 
event that any member of the group who has heretofore 
or shall hereafter withdraw would have become entitled 
to such dividend if he had remained in the fund the com- 
mission is empowered to pay the amount of the dividend 
to such employer. [Subd. 3 amd by L. 19 16, ch. 622.] 

4. If the amount of premiums collected from any em- 
ployer at the beginning of any period of, six months is 
ascertained and calculated by using the estimated expen- 
diture of wages for the period of time covered by such 
premium payment as a basis, an adjustment of the 
amount of such premium shall be made at the end of 
such six months, and the actual amount of such premium 
shall be determined in accordance with the amount of 
the actual expenditure of wages for such period; and, 
if such wage expenditure for such period is less than the 
amount on which such estimated premium was collected, 



352 COMPENSATION INSURANCE 

such employer shall be entitled to receive a refund from 
the state insurance fund of the difference between the 
amount so paid by him and the amount so found to be 
actually due, or to have the amount of such difference 
credited on succeeding premium payments, at his option ; 
and if such actual premium, when so ascertained, ex- 
ceeds in amount a premium so paid by such employer at 
the beginning of such six months, such employer shall 
immediately upon being advised of the true amount of 
such premium due forthwith pay to the treasurer of the 
state an amount equal to the difference between the 
amount actually found to be due and the amount paid 
by him at the beginning of such six months' period. 

§ 98. Time of Payment of Premiums. — Except as 
otherwise provided in this chapter, all premiums shall 
be paid by every employer into the state insurance fund 
on or before July first, nineteen hundred and fourteen, 
and semi-annually thereafter, or at such other time or 
times as may be prescribed by the commission. The 
commission shall mail a receipt for the same to the em- 
ployer and place the same to the credit of the state in- 
surance fund in the custody of the state treasurer. 

§ 99. Action for Collection in Case of Default. — 
If an employer shall default in any payment required 
to be made by him to the state insurance fund, the 
amount due from him shall be collected by civil action 
against him in the name of the people of the state of 
New York, and it shall be the duty of the commission on 
the first Monday of each month after July first, nineteen 
hundred and fourteen, to certify to the attorney-general 
of the state the names and residences, or places of busi- 
ness, of all employers known to the commission to be in 
default for such payment or payments for a longer period 
than five days and the amount due from such employer, 



APPENDIX A 353 

and it shall then be the duty of the attorney-general 
forthwith to bring or cause to be brought against each 
such employer a civil action in the proper court for the 
collection of such amount so due, and the same when 
collected, shall be paid into the state insurance fund, and 
such employer's compliance with the provisions of this 
chapter requiring payments to be made to the state insur- 
ance fund shall date from the time of the payment of 
said money so collected as aforesaid to the state treas- 
urer for credit to the state insurance fund. 

§ ioo. Withdrawal from Fund. — Any employer may, 
upon complying with subdivision two or three of section 
fifty of this chapter, withdraw from the fund by turning 
in his insurance contract for cancellation, provided he 
is not in arrears for premiums due the fund and has 
given to the commission written notice of his intention to 
withdraw within thirty days before the expiration of the 
period for which he has elected to insure in the fund; 
provided that in case any employer so withdraws, his 
liability to assessments shall, notwithstanding such with- 
drawal, continue for one year after the date of such 
withdrawal as against all liabilities for such compensa- 
tion accruing prior to such withdrawal. [As am'd by L. 
1 916, ch. 622.] 

This reference to assessment is the only use of the word in the 
Workmen's Compensation Law. The Attorney-General, in an 
opinion of July 16, 191 5, has held that assessments cannot be 
levied. 

§ 101. Audit of Payrolls. — Every employer who is 
insured in the state insurance fund shall keep a true and 
accurate record of the number of his employees and the 
wages paid by him, and shall furnish to the commission, 
upon demand, a sworn statement of the same. Such rec- 
ord shall be open to inspection at any time and as often 



354 COMPENSATION INSURANCE 

as the commission shall require to verify the number of 
employees and the amount of the payroll. 

§ 102. Falsification of Payroll. — An employer'who 
shall willfully misrepresent the amount of the payroll 
upon which the premiums chargeable by the state insur- 
ance fund is to be based shall be liable to the state in ten 
times the amount of the difference between the premiums 
paid and the amount the employer should have paid had 
his payroll been correctly computed and the liability to 
the state under this section shall be enforced in a civil 
action in the name of the state insurance fund, and any 
amount so collected shall become a part of such fund. 

§ 103. Willful Misrepresentation. — Any person 
who willfully misrepresents any fact in order to obtain 
insurance in the state insurance fund at less than the 
proper rate for such insurance, or in order to obtain pay- 
ment out of such fund, shall be guilty of a misdemeanor. 

§ 104. Inspections. — The commission shall have the 
right to inspect the plants and establishments of em- 
ployers insured in the state insurance fund ; and the in- 
spectors designated by the commission shall have free 
access to such premises during regular working hours. 

§ 105. Disclosures Prohibited. — Information ac- 
quired by the commission or its officers or employees from 
employers or employees pursuant to this chapter shall not 
be opened to public inspection, and any officer or employee 
of the commission who, without authority of the commis- 
sion or pursuant to its rules or as otherwise required by 
law shall disclose the same shall be guilty of a misde- 
meanor. 

§ 106. Reports of State Insurance Fund; Exami- 
nation by Insurance Department. — The commission 



APPENDIX A 355 

shall make reports to the superintendent of insurance 
concerning the state insurance fund at the same times and 
in the same manner as is required from mutual employ- 
ers' liability and workmen's compensation corporations 
by section one hundred and ninety-two of the insurance 
law, and the superintendent of insurance may examine 
into the condition of such state insurance fund at any 
time, either personally or by any duly authorized exam- 
iner appointed by him, for the purpose of determining the 
condition of the investments and the adequacy of the re- 
serves of such fund. [Added by L. 1916, ch. 622.] 



ARTICLE 6 

Miscellaneous Provisions 

Section no. Penalties applicable to expense of commission, 
in. Record and report of injuries by employers. 

112. Information to be furnished by employer. 

113. Inspection of records of employers. 

114. Interstate commerce. 

115. Penalties for false representations. 

116. Limitation of time. 

117. Duties of commissioner of labor. 

118. Unconstitutional provisions. 

119. Actions or causes of action pending. 

§ 1 10. Penalties Applicable to Expenses of Com- 
mission. — All penalties imposed by this chapter shall be 
applicable to the expenses of the commission. When col- 
lected by the commission such penalties shall be paid into 
the state treasury and be thereafter appropriated by the 
legislature for the purposes prescribed by this section. 

Penalties are prescribed by §§ 26, 31, 50, 69, 102, 103, 105, in, 
115. Actions for their recovery may be brought under § 26. 



356 COMPENSATION INSURANCE 

§ in. Record and Report of Injuries by Employ- 
ers. — Every employer shall keep a record of all injuries, 
fatal or otherwise, received by his employees in the course 
of their employment. Within ten days after the occur- 
rence of an accident resulting in personal injury a report 
thereof shall be made in writing by the employer to the 
commission upon blanks to be procured from the commis- 
sion for that purpose. Such report shall state the name 
and nature of the business of the employer, the location 
of his establishment or place of work, the name, address 
and occupation of the injured employee, the time, nature 
and cause of the injury and such other information as 
may be required by the commission. An employer who 
refuses or neglects to make a report as required by this 
section shall be guilty of a misdemeanor, punishable by a 
fine of not more than five hundred dollars. 

Compare Labor Law, §§ 20-a, 87 and 126. 

In regard to evidence of accidental injury, §§ 18, 21 and in 
are to be read together. The employer's failure to give the de- 
tails required by § in has told against him in McQueeney v. Sut- 
phen & Myer, 167 App. Div. 528; Kohler v. Frohmann, 167 App. 
Div. 533 ; and Powley v. Vivian & Co., 169 App. Div. 170. 

§ 112. Information to be Furnished by Employer. — 
Every employer shall furnish the commission, upon re- 
quest, any information required by it to carry out the pro- 
visions of this chapter. The commission, a commissioner, 
deputy commissioner, or any person deputized by the 
commission for that purpose, may examine under oath 
any employer, officer, agent or employee. An employer 
or an employee receiving from the commission a blank 
with directions to file the same shall cause the same to be 
properly filled out so as to answer fully and correctly 
all questions therein, or if unable to do so, shall give good 
and sufficient reasons for such failure. Answers to such 
questions shall be verified under oath and returned to the 



APPENDIX A 357 

commission within the period fixed by the commission 
therefor. 

§ 113. Inspection of Records of Employers. — All 
books, records and payrolls of the employers showing or 
reflecting in any way upon the amount of wage expendi- 
tures of such employers shall always be open for inspec- 
tion by the commission or any of its authorized auditors, 
accountants or inspectors for the purpose of ascertaining 
the correctness of the wage expenditure and number of 
men employed and such other information as may be 
necessary for the uses and purposes of the commission in 
the administration of this chapter. 

§ 114. Interstate Commerce. — The provisions of this 
chapter shall apply to employers and employees engaged 
in intrastate, and also in interstate or foreign commerce, 
for whom a rule of liability or method of compensation 
has been or may be established by the congress of the 
United States, only to the extent that their mutual con- 
nection with intrastate work may and shall be clearly 
separable and distinguishable from interstate or foreign 
commerce, except that such employer *and his employees 
working only in this state may, subject to the approval 
and in the manner provided by the commission and so 
far as not forbidden by any act of congress, accept and 
become bound by the provisions of this chapter in like 
manner and with the same effect in all respects as pro- 
vided herein for other employers and their employees. 

Compare § 2, groups 1-8, 10. 

"Section 114 is one of limitation": Jensen v. Southern Pacific 
Co., 215 N. Y. 514, 521; Post v. Burger & Gohlke, 216 • N. Y. 544. 

"The words 'may be' should be construed in the sense of 
'shall be'": Jensen v. Southern Pacific Co., 215 N. Y. 522. 

The decisions of the courts narrow the application of the law 
of negligence to accidental injuries arising in the interstate com- 
24 



358 COMPENSATION INSURANCE 

merce employments enumerated under a Workmen's Compensa- 
tion Law, § 2, not only to railroad accidents strictly but to rail- 
road accidents in which the accident is due to the railroad's 
negligence. The relations of federal and state law in the matter 
of workmen's compensation are discussed fully in the leading 
case of Winfield v. N. Y. C. & H. R. R. R. Co., 216 N. Y. 284. 
The coverage of the Workmen's Compensation Law of New 
York, from the standpoint of interstate commerce, is intended to 
be just as broad as federal law permits: Jensen v. Southern 
Pacific Co., 215 N. Y. 521. An accident to an employee of an in- 
terstate railroad is compensable : if the element of negligence 
is absent: Winfield v. N. Y. C. & H. R. R. R. Co., 216 N. Y. 
284; if the employee is engaged in new construction work: 
White v. N. Y. Central & H. R. R. R. Co., S. D. R., vol. 2, p. 477, 
compensation ruling, as affirmed without opinion, 169 App. Div. 
903, 216 N. Y., Rep. 653; if the employee is injured while repair- 
ing an empty car of a foreign company : Parsons v. Delaware & 
Hudson Co., 167 App. Div. 536; Okrzesz v. Lehigh Valley Rail- 
road Co., 170 App. Div. 15; if the employee is injured on a 
steamship line operated by the railroad : Jensen v. Southern 
Pacific Co., 215 N. Y. 522; if the railroad, though an intrastate 
carrier, occasionally carries interstate baggage, freight, passen- 
gers, cars, etc. ; Fairchild v. Pennsylvania R. R. Co., 170 App. 
Div. 135. 

A claim for compensation may exist concurrently with a 
remedy in admiralty: Walker v. Clyde S. S. Co., 215 N. Y. 
529; Opinion of Counsel to Workmen's Compensation Commis- 
sion, S. D. R., vol. 1, p. 413. 

§ 115. Penalties for False Representation. — If for 
the purpose of obtaining any benefit or payment under 
the provisions of this chapter, either for himself or any 
other person, any person willfully makes a false statement 
or representation, he shall be guilty of a misdemeanor. 

§ 116. Limitation of Time. — No limitation of time 
provided in this chapter shall run as against any person 
who is mentally incompetent or a minor dependent so long 
as he has no committee, guardian or next friend. 



APPENDIX A 359 

§ 117. Duties of Commissioner of Labor. — The 
commissioner of labor shall render to the commission any 
proper aid and assistance by the department of labor as 
in his judgment does not interfere with the proper con- 
duct of such department. 

§ 118. Unconstitutional Provisions. — If any sec- 
tion or provision of this chapter be decided by the courts 
to be unconstitutional or invalid, the same shall not affect 
the validity of the chapter as a whole or any part thereof 
other than the part so decided to be unconstitutional or 
invalid. 

§ 119. Actions or Causes of Action Pending. — This 
act shall not affect any action pending or cause of action 
existing or which accrued prior to July first, nineteen 
hundred and fourteen. 

ARTICLE 7 

Laws Repealed; When to Take Effect 

Section 130. Laws repealed. 

131. When to take effect. 

§ 130. Laws Repealed. — Article fourteen-a and sec- 
tions two hundred and fifteen to two hundred nineteen-g, 
both inclusive, of chapter thirty-six of the laws of nine- 
teen hundred and nine, as amended *by chapter six hun- 
dred and seventy-four of the laws of nineteen hundred 
and ten, are hereby repealed. 

§ 131. When to Take Effect. — This chapter shall 
take effect immediatelyf , provided that the application of 

* "As amended" should read "as added." 

t L. 1916, ch. 816, has words "January first, nineteen hundred 
and fourteen/' instead of word "immediately," which was in- 
serted by L. 1914, ch. 41, in effect March 16, 1914. The amend- 
ments of L. 1916, ch. 622, took effect June 1, 1916. 



360 COMPENSATION INSURANCE 

this chapter as between employers and employees and 
the payment of compensation for injuries to employees 
or their dependents, in case of death, shall take effect July 
first, nineteen hundred and fourteen, but payments into 
the state insurance fund may be made prior to July first, 
nineteen hundred and fourteen. 



APPENDIX B 

FORM OF WORKMEN'S COMPENSATION AND EM- 
PLOYERS' LIABILITY POLICY CONTRACT COV- 
ERING A TYPICAL MANUFACTURING RISK 

SCOPE AND CONDITIONS OF CONTRACT 

THE INSURANCE COMPANY 

(herein called the company) 

(A Liability Insurance Company authorised to do busi- 
ness in the state in which this Policy applies.) 

DOES HEREBY AGREE WITH THE EMPLOYER 

Named and described as such wi the Declarations forming 
part hereof, as respects personal injuries sustained by 
his employees including death at any time resulting 
therefrom as follows: 

Indemnity I. (a) To Pay to the person and in the 
manner provided by the Workmen's Compen- 
sation Law, any sum due or to become due 
from this Employer because of any such in- 
jury and the obligation for compensation there- 
for imposed upon or accepted by this Em- 
ployer under certain Statutes cited and de- 
scribed in an endorsement attached to this 
361 



Sm COMPENSATION INSURANCE 

Policy, each of which Statutes is herein re- 
ferred to as the Workmen's Compensation 
Law. It is agreed that all of the provisions 
of each Workmen's Compensation Law cov- 
ered hereby shall be and remain a part of this 
contract, as fully and completely as though 
written herein, so far as they apply to compen- 
sation for any personal injury or death cov- 
ered by this Policy while this Policy shall re- 
main in force, and all premiums provided by 
this Policy, or by any endorsement hereon shall 
be fully earned whether any such Workmen's 
Compensation Law, or any part of any such, 
is now, or shall hereafter be, declared invalid 
or unconstitutional. This obligation for com- 
pensation shall include all provisions of the 
Workmen's Compensation Law respecting 
funeral expenses, medical, surgical, nurse and 
hospital services, medical or surgical apparatus 
or appliances and medicines. Nothing herein 
contained shall operate to so extend this Policy 
as to include within its terms any Workmen's 
Compensation Law, scheme or plan not cited 
and described in an endorsement hereto at- 
tached. 

(b) To Indemnify this Employer against 
loss by reason of the liability imposed upon 
him by law for damages on account of such in- 
juries. 
Service II- (i) To Serve this Employer by the in- 

spection of workplaces covered by the Policy 
when and as deemed desirable by the Company 
and thereupon to suggest to this Employer such 
changes or improvements as may operate to 



APPENDIX B 



363 



Defense 



Expenses 



Persons 
Covered 



reduce the number or severity of injuries 
during work, and (2) upon notice of such 
injuries by investigation thereof and by set- 
tlement of any resulting claims in accordance 
with the law. 

III. To Defend in the name and on behalf 
of this Employer any suits or other proceed- 
ings which may at any time be instituted 
against him on account of such injuries, in- 
cluding suits or other proceedings alleging 
such injuries and demanding damages or com- 
pensation therefor although such suits, other 
proceedings, allegations or demands are wholly 
groundless, false or fraudulent. 

IV. To Pay all costs taxed against this Em- 
ployer in any legal proceeding defended by 
the Company, all interest accruing after entry 
of judgment, and all expenses incurred by 
the Company for investigation, negotiation or 
defense. 

V. This Agreement shall apply to such in- 
juries sustained by any person or persons le- 
gally employed by this Employer whose entire 
remuneration shall be included in the total 
actual remuneration for which provision is 
hereinafter made, upon which remuneration 
the premium for this Policy is to be computed 
and adjusted and to such injuries sustained 
by the President, any Vice-President, Secre- 
tary or Treasurer of this Employer, if a cor- 
poration, but the remuneration of any such 
officer may be excluded unless he personally 
supervises the manual or mechanical processes 
covered hereby. 



364 



COMPENSATION INSURANCE 



Operations 
Covered 



Policy 
Period 



VI. This Agreement shall apply to such 
injuries so sustained by reason of the business 
operations described in said Declarations, to- 
gether with operations incident thereto, while 
conducted either at the workplaces therein de- 
scribed and defined or elsewhere in connection 
therewith. 

VII. This Agreement shall apply only to 
such injuries so sustained by reason of acci- 
dents occurring while this Policy remains in 
force as provided and defined in Item 2 of 
said Declarations. 



this agreement is subject to the following 

conditions: 



Premium 
Computa- 
tion 



A. The Premium is based upon the entire 
remuneration earned during any Policy Pe- 
riod, by all employees of this Employer en- 
gaged in the business operations described 
in said Declarations, and not herein elsewhere 
specifically excluded, the amount of such re- 
muneration to be exhibited by this Employer 
to the Company as provided in Condition C. 
hereof, and the earned premium adjusted in 
accordance therewith at the rates hereinafter 
specified. If the earned premium thus com- 
puted is greater than the advance premium 
paid, this Employer shall immediately pay the 
additional amount to the Company ; if less, the 
Company shall return to this Employer the 
unearned portion, but in any event the Com- 
pany shall retain the Minimum Premium stated 
in said Declarations. 



APPENDIX B 365 

Cancelation B. This Policy may be canceled at any time 
by either of the parties upon written notice 
to the other party stating when, not less than 
ten days thereafter, cancelation shall be ef- 
fective and the Policy shall thereupon termi- 
nate. Such portion of said Workmen's Com- 
pensation Law, or any other statute, or any 
lawful order of any Board, Commission or 
other designated agency of the state in any 
state in which this Policy is operative as shall 
require that similar notice of cancelation shall, 
at the same time, be sent by the party giving it 
to any Board, Commission, or other designated 
agency of such state is hereby made a part 
of this Policy in the language of such law or 
order as fully and completely as if wholly 
written herein. The remuneration of employees 
for the full Policy Period during which such 
cancelation becomes effective, shall be com- 
puted upon the basis of the remuneration dur- 
ing such period to date of cancelation. If 
such cancelation is at the Company's request 
or at this Employer's request, when actually re- 
tiring from the business herein described, or 
at the request of either to become effective at 
the end of any Policy Period, the earned pre- 
mium shall be computed and adjusted pro rata 
as provided in Condition A. If such cancela- 
tion is at this Employer's request and he is not 
retiring from the business herein described, and 
cancelation is not to become effective at the 
end of a Policy Period, the earned premium 
shall be computed and adjusted at short rates, 
in accordance with the table printed hereon, 



S66 



COMPENSATION INSURANCE 



Inspection 



Statutory 



but 'such short rate premium shall not be less 
than the minimum premium stated in said 
Declarations. If at any time hereafter while 
this Policy is in force any Compensation Law 
herein described shall be declared invalid or 
unconstitutional, in whole or in part, by the 
judgment of any court of last resort and this 
Employer shall thereafter notify the Company 
in writing of his desire to eliminate from this 
Policy all provisions respecting the obligations 
contained in such Compensation Law, the 
Company upon receipt of such notice will ad- 
just the premium rates expressed in this Policy 
to equitably reflect the changed obligation. 
Until such written notice requesting readjust- 
ment of premium rate shall be received by 
the Company, the premium rates expressed in 
this Policy shall remain operative. Notice of 
cancelation mailed to the address of this Em- 
ployer herein given shall be a sufficient notice 
and the check of the Company, similarly 
mailed, a sufficient tender of any unearned 
premium. 

C. The Company shall be permitted, at all 
reasonable times during any Policy Period, to 
inspect the plants, works, machinery and ap- 
pliances covered by this Policy, and to exam- 
ine this Employer's books at any time during 
any Policy Period or any extension thereof, or 
within one year after cancellation, so far as 
they relate to the remuneration earned by his 
employees while the Policy was in force. 

D. Such part of said Workmen's Compensa- 



Obhgations t } on L aw or any other statute of the state in 



APPENDIX B 367 

which this Policy is operative as provides (a) 
that an injured employee, or his representa- 
tive if death results, or any Board, Commis- 
sion, Officer or other designated agency of the 
state in his or their behalf, shall have the 
right to enforce a claim to compensation di- 
rectly against the Company, or, (b) that as 
to any such employee notice to or knowledge 
on the part of this Employer of the occurrence 
of the injury or death shall be notice to or 
knowledge of the Company; or, N (c) that juris- 
diction of this Employer obtained in any legal 
proceeding for the recovery of compensation 
shall be jurisdiction of the Company, which 
shall be bound by any order, finding, decision, 
award or judgment therein legally rendered 
against this Employer; or, (d) that any such 
claim to compensation shall be an equitable lien 
upon any money which may become owing to 
this Employer on account of this Policy ; or, 
(e) that the Company shall not be relieved 
from the payment of such compensation be- 
cause of the insolvency or bankruptcy of this 
Employer or because of any default of this 
Employer after the injury, or; (f) that under 
any circumstances compensation shall be paid 
direct to any claimant by the Company is here- 
by made a part of this Policy in the language 
of such law and as fully and completely as if 
wholly written herein and the relation between 
the Company and such injured employee or 
those claiming by, through or under him shall 
be as declared by such provisions but subject 
to the terms, provisions, limitations and re- 



368 



COMPENSATION INSURANCE 



Notice 



Special 
Statutes 



Assignment 



Co-Insur- 
ance 



quirements of the Policy not inconsistent there- 
with. 

E. This Employer upon the occurrence of an 
accident shall give immediate written notice 
thereof to the Company or to its duly autho- 
rized Agent with the fullest information ob- 
tainable. He shall give like notice with full 
particulars of any claim made on 'account of 
such accident. If, thereafter, any suit or other 
proceeding is instituted against this Employer, 
he shall immediately forward to the Company 
every summons, notice or other process served 
upon him. Nothing contained in paragraph D 
foregoing or elsewhere in this Policy shall re- 
lieve this Employer of his obligations with re- 
spect to notice as herein imposed upon him. 

F. If the method of serving notice of can- 
celation, or the limitation of time for notice 
of accident or for any legal proceeding herein 
contained is at variance with any specific 
statutory provision in relation thereto, in force 
in any state in which this Policy is operative, 
such specific statutory provision shall super- 
sede any such condition in this contract incon- 
sistent therewith. 

G. No assignment of interest under this Pol- 
icy shall bind the Company unless the consent 
of the Company shall be endorsed hereon. 

H. If this Employer carries a policy of any 
other insurer covering concurrently a claim 
covered by this Policy, he shall not recover 
from the Company a larger proportion of any 
such claim than the sum hereby insured bears 
to the whole amount of valid and collectible 



APPENDIX B 369 

concurrent insurance. In any state where the 
law permits employees or their dependents to 
make claims for compensation against the 
Company direct, this condition as to co-insur- 
ance shall not apply to any such claim so made 
by any employee or his dependents covered 
hereby. 

Subrogation I. The Company shall be subrogated in case 
of any payment under this Policy to the ex- 
tent of such payment to all rights of recovery 
therefor vested by law in this Employer 
against persons, corporations or estates. 
Should any employee or dependent covered 
hereby, who is legally permitted to do so, 
make a claim for compensation against the 
Company direct, the Company, upon payment 
of the same and to the extent of such pay- 
ment, shall also be subrogated to all similar 
rights of recovery vested by law in such em- 
ployee or such dependent. 

Changes J- No condition or provision of this Policy 

shall be waived or altered except by endorse- 
ment attached hereto signed by the President, 
a Vice-President, Secretary, or Assistant Sec- 
retary of the Company; nor shall notice to 
any Agent, nor shall knowledge possessed by 
any Agent or by any other person, be held to 
affect a waiver or change in any part of this 
contract. Changes in the written portion of 
the Declarations forming part hereof (except 
Items 2 and 3) may be made by the Agent 
• countersigning this Policy, such changes to 
bind the Company when initialed by such 
Agent. The personal pronoun herein used to 



370 COMPENSATION INSURANCE 

refer to this Employer shall apply regardless 
of number or gender. 
Declara- K. The statements in Items numbered one 

tions t thirteen inclusive, in the Declarations here- 

inafter contained are true, except such as are 
declared to be matters of estimate only. This 
Policy is issued in consideration thereof, the 
provisions of the Policy respecting its pre- 
miums and the payment of the premiums in 
such Declarations expressed. 

In Witness* Whereof, The Insurance Com- 
pany, has caused this Policy to be signed by its President 
and a Secretary at , and counter- 
signed by a duly authorised Agent of the Company. 



Secretary Liability Department. President. 
Countersigned by 

This space is intended for the attachment of such en- 
dorsements as may be executed as in the Policy pro- 
vided, and, when so executed and attached they are to 
be construed as part of the Policy. 

ENDORSEMENTS 

The obligations of Section I (a) of the Policy to which 
this endorsement is attached include such Workmen's 
Compensation Laws as are herein cited and described and 
none other. 

Act No. 338, Laws of 191 5, Commonwealth of Penn- 
sylvania, 

Act No. 341, Laws of 1915, Commonwealth of Penn- 
sylvania, 



APPENDIX B 371 

and any laws amendatory thereof which may become 
effective while this Policy is in force. 

The Company hereby agrees that in the event of fail- 
ure of the Employer promptly to pay any instalment of 
compensation insured against, the Company will forth- 
with make such payment to the injured employee or the 
dependents of the deceased employee, and that the obliga- 
tions shall not be affected by any default of the Em- 
ployer after the accident in the payment of premiums 
or in the giving of any notice required by this Policy 
or otherwise. The foregoing agreement shall be con- 
strued to be a direct promise to such injured employee 
and to such dependents enforceable by action brought in 
the name of such injured employee or in the name of 
such dependents. 

If any property of the Employer is subjected to a lien 
as provided in Section 429 of the Workmen's Compensa- 
tion Act which lien is based upon any unpaid portion 
of any compensation obligation undertaken by this 
Policy, and if the Employer desires to convey or 
encumber such property or any part thereof, the 
Company agrees, that by such means as the law pro- 
vides, it will cause said lien to be removed from such 
part of the property encumbered thereby as the Em- 
ployer may at that time desire to convey or encumber 
unless said lien shall have been removed by other lawful 
means. 

If there shall be any change in the basis rates applicable 
to the trade, business or occupation of the Employer dur- 
ing the term in which this Policy is in effect, such change 
of rate shall be applied in the adjustment of the final pre- 
mium from the date of the approval of such change of 
rate by the Insurance Department until the expiration of 
this Policy. 



372 COMPENSATION INSURANCE 

To be attached to and form a part of Policy No. 

issued to John Doe. 

by 
THE INSURANCE COMPANY, 



, President. 

It is understood and agreed that the remuneration of 
employees who have rejected the Pennsylvania Work- 
men's Compensation Law shall be reported separately 
from the remuneration of employees who have accepted 
this Law, and a premium paid on the same at the rate 
or rates appearing in the declaration of the Policy. 

Nothing herein contained shall vary, alter or extend 
any provision or condition of the Policy, other than as 
above stated. 

To be attached to and form a part of Policy No. 

issued to John Doe. 

by 

THE INSURANCE COMPANY, 



President. 

If there shall be any change in or extension of the 
Employer's business or if the Employer shall make any 
structural additions, extraordinary repairs or alterations 
to his plant as above described, this Policy shall cover 
all such operations, trade, business or occupation as fully 
as if the same had been set forth in the Declarations 
which form a part of this Policy and the Employer shall 
pay therefor a premium based upon the Company's rates 
filed with and approved by the Insurance Department of 
the Commonwealth of Pennsylvania and respectively ap- 
plicable to such operations, trade, business or occupation. 

The Employees of a Contractor or Subcontractor while 



APPENDIX B 373 

such Employees are engaged on or in connection with 
the business operations described in the Declarations shall 
be deemed to be Employees of the Employer, unless such 
Contractor or Subcontractor shall furnish satisfactory 
certificates of concurrent valid and collectible Workmen's 
Compensation Insurance, or unless the Employer shall 
have exempted himself from liability to the Employees 
of such Contractor or Subcontractor in the manner pro- 
vided by the Compensation Law. 

To be attached to and form a part of Policy No. 
issued to John Doe. 

by 

THE . INSURANCE COMPANY, 



President. 



PREMIUM RATE ADJUSTMENT 



The premium rates expressed in the Policy to which 
this endorsement is attached are the basis rates approved 
by the Pennsylvania Insurance Department and are sub- 
ject to such subsequent adjustment as of the date upon 
which the first Policy Period becomes effective as shall 
be determined by such differential rate computation as 
may hereafter be authorized by said Department during 
such Period. When a differential rate computation has 
been so authorized, this endorsement shall be replaced 
by a new endorsement applying such computation to this 
risk if subject thereto as of the effective date above 
stated, and any reduction from the basis rates on ac- 
count of the application of any system of schedule or 
merit rating shall be clearly set forth in such new en- 
dorsement upon the issuance of which this endorsement 
shall be void and of no effect. 
25 



374 COMPENSATION INSURANCE 

To be attached to and form a part of Policy No. 

issued to John Doe. 

by 

THE INSURANCE COMPANY, 

President. 



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379 



SHORT RATE TABLE 



Short Rate Cancelation Table 


FOR TERM OF ONE YEAR 


Per cent, 
of Annual 
Premium 


Per cent, 
of Annual 
Premium 


lday 2 


50 days 


28 


2 days 4 


55 " 


29 


3 " 5 


60 " ..... 


30 


4 " 6 


65 " 


33 


5 " 7 


70 " ..... 


36 


6 " 8 


75 " 


37 


7 " 9 


80 " 


38 


8 " 9 


85 " 


39 


9 "..,... 10 


90 " or three months . 


40 


10 " 10 


105 " 


45 


11 " 11 


120 " or four months . 


50 


12 " 12 


135 " 


55 


13 " 13 


150 " or five months . 


60 


14 " 13 


165 " 


65 


15 " 14 


180 " or six months 


70 


16 " 14 


195 " 


73 


17 "....". . 15 


210 " or seven months . 


75 


18 " 16 


225 " 


78 


19 " 16 


240 " or eight months . 


80 


20 " 17 


255 " 


83 


25 " 19 


270 " or nine months. 


85 


30 " 20 


285 " 


88 


35 " 23 


300 " or ten months 


90 


40 " 26 


315 " 


93 


45 " 27 


330 " or eleven months 


95 




360 " or twelve months 


100 



38o 



INDEX 



26 



INDEX 



Accident frequency, 2.22, 230 
reduction in, 27-31 
diagram of, 28 
Accident prevention, 13-26, 

139 

agencies of, 14-17 

American Museum of 
Safety, 16, 17 

benefits of, 2J 

devices, 20-23 

Illinois Steel Co., 24-26 

insurance companies, 16 

Massachusetts, result of 
campaign, 32-33 

methods of, 17-26 

National Safety Council, 
16, 17 

New Jersey, 15 

organization of, 22-26 
Illinois Steel Co., dia- 
gram of, 25 

railroads, 14 

reduction in accident fre- 
quency, 27-31 

reduction in loss of time 
and wages from, 31- 

33 

relative efficiency of meth- 
ods, 25-26 
results of, 27-38 



Accident prevention, saving 
net, U. S. Steel corpo- 
ration, diagram of, 

35 
saving from, 33-36 

saving from, U. S. Steel 
Corporation, 34-35 

U. S. Steel Corporation, 15 
Accidents, industrial, 3-38 

classification of, 116-118 

conclusion, 36-37 

definition of, 3 

extent of, 3-5 

loss from, 6 

loss of time, 6, 8 

loss to employer, 8 

loss to society, 9 

Massachusetts, 5 

mining, 3 

prevention of. See Acci- 
dent prevention 

problem of, 12 

attempts to solve, 65-66 

problem of compensating 
for loss from, 68 

responsibility for, 9-1 1 

results of, 5-9 

statistics, 11-12 

steam railways, 4 

by wage groups, 7 



383 



384 



INDEX 



Administration, commission 
plan, advantages of, 

136, 137 
disadvantages of, 137 

Administration of work- 
men's compensation, 
132-137 

Assignments, 138-139 

Associated Companies, 285- 
286 

Assumption of risk, doctrine 
of, 45-46 
modification of doctrine 

of, 49, 50 
Average, law of, 168 
"Average weekly wages," 

definition of, 130 

Bailey on Personal Injuries, 

5 2 > 55 
Basic pure premium, 227 

Beneficiaries of compensa- 
tion, 112-114 
Benefits, limitations of, 119- 

121 
Beyer, D. S., 37, 260-261, 263 
Bohlen, Francis H., 55 
Brooks, John Graham, 94 
Burdick, F. H., 43-44, 55, 

56 
Bureau of Labor Statistics, 
Workmen's Compen- 
sation and Insurance 
Series, 94 

California, Workmen's Com- 
pensation Act, 112-113 



California, permanent dis- 
ability benefits, 122-123 

Catastrophe, definition of, 
280-281 

Catastrophe hazard, insur- 
ance of, 280-286 

Catastrophe reserves, 190, 
282-283 

Catastrophes, 221, 232 

Cities, growth of, J^ 

Commission plan, advantages 

of, 136, 137 
disadvantages of, 137 
Commissions, administrative, 
132-137 
duties of, 134-136 
Common employment, doc- 
trine of, 46-48 
abrogation of doctrine of, 

51-52 
modification of doctrine 
of, 50-52 

Commons and Andrews, 132, 
140 

Commutation of payments, 
126-127 

Compensation, computation 
of, 129-131 

Compulsory Insurance in 
Germany, 94 

Compulsory workmen's com- 
pensation laws, 106 

Computation of compensa- 
tion, 129-13 1 

Constitutionality, elective 
workmen's compensa- 
tion laws, i55- J 57 



INDEX 



385 



Constitutionality, compulsory 
workmen's compensa- 
tion laws, i43" I 55 
workmen's compensation 

laws, 142-157 
U. S. Supreme Court de- 
cisions, 151-157 

Contracting out, 49, 50 

Contractors, 139 

Contributory negligence, doc- 
trine of, 48 

Corporations, compensation 
schemes of, 95-96 

Cost, burden of, 137-138 

Dawson, M. M., 278 
Dawson, W. H., 87, 93 
Death benefits, 123-126, 128 
DeLeon, E. W., 207 
Dicey, A. V., 53-54, 56 
Disability, duration of, 6 
Downey, E. H., 198, 239, 264 

Eastman, Crystal, 59, 65, 67 
Election of' compensation, 

104-108 
Elective workmen's compen- 
sation laws, 104-108 
Elliott on Insurance, 199, 

207 
Employers' liability, assump- 
tion of risk, 45-46 
burden of proof, 48-49 
common employment, 46- 

48 
contracting out, 49 
contributory negligence, 48 



Employers' liability, criticism 
of, 57-67 
death limitation, 49 
defects of, 65 
duties of employer, 43-45 
employee's criticism, 59-63 
employer's criticism, 63-64 
fellow servant rule, 46-48 
Germany, 82-84 
Great Britain, 88-90 
historical development. 52- 

55 
law of, 42-55 

Michigan, 60 

modifications of common 

law, 49-52 

New York, 59-62 

Pennsylvania, 59-60 

personal fault concept, 57 

proof of, 45 

results of, 57-67 

society's criticism, 64-65 

superior servant rule, 51 

vice-principal rule, 50-51 

Employers' Liability Act, 
Alabama, 53 
Federal Statute, 53, 55 
Great Britain, 52, 88, 89 
Massachusetts, 53, 55 

Employers' liability contract, 
201-205 
cancellation, 203 
inspection, 203 
miscellaneous, 204-205 
notices, 203-204 
obligation assumed, 201- 
202 



386 



INDEX 



Employers' liability contract 
premium computation, 
202-203 
warranties, 204 

Employers' liability insur- 
ance, limits in, 282 
premium rates, 208-209 
reserves, 265-279 

Employers' liability rates, 
208-209 

Employments covered by 
workmen's compensa- 
tion laws, 108-110 

Exemptions, 138-139 

Expense loading, 222, 232- 

234 
Experience rating, 253-264 
arguments against, 262 
arguments for, 262 
definition of, 252 
Massachusetts plan, 260 
Ohio plan, 260 
National Workmen's Com- 
pensation Service Bu- 
reau plan, 260 
New York plan, 255-259 
application of, 259 
calculation of loss ratio, 

255- 2 57 
computation of actual 
debits and credits, 258- 

259 

maximum debits and 

credits, 257-258 
neutral zone, 257 
schedule rated risks, 259 
proposed plans, 260-261 



Experience rating, New 
York plan, prospective, 
252 
purpose of, 252-253 
requirements for scien- 
tific plan, 254-255 
retrospective, 252 
Extraterritorial accidents, 
139-140 

Farwell v. Boston & Wor- 
cester Railroad Cor- 
poration, 45-46, 47-48 
Fellow-servant rule, 46-48 
abrogation of, 51-52 
modification of, 50-52 
First Conference on Sched- 
ule Rating, 242 
Fisher, Arne, 239 
Fisher, W. C, 140 
Fly nn, B. D., 279 
Fondiller, Richard, 279 
Forbes, Charles S., 263 
Frankel and Dawson, 82-83, 
93 

Gaty, T. E., 263 

Germany, employers' liabil- 
ity, 82-84 
workmen's compensation, 
84-87 

Great Britain, employers' lia- 
bility, 88-90 
workmen's compensation, 
90-93 

Greene, W. W., 263 



INDEX 



387 



Hansen, C. M., 263 
Hoffman, Frederick L., 3, 37 
Howkins v. Bleakly and 

Garst, 156-157 
Huebner, S. S., 168, 172 

Illinois, rate sheet for, 214 

Imperial Insurance Ordi- 
nance, 82 

Increasing cost of the act, 
220, 232 

Industrial accident insur- 
ance, 65, 66 

Industrial accidents. See 
Accidents, industrial 

Industrial Compensation 

Rating Schedule, 242 

Industrial diseases, 26, 111- 
112, 232 

Industrial relations, changes 
in, 69-72 

Injuries covered by work- 
men's compensation 
laws, 110-112 

Insurance of the catastrophe 
hazard, 280-286 

Insurance, employers'* liabil- 
ity. See Employers' 
liability insurance 
mutual, 184-187 
policy contract, 199-207 
premium, 169-176 
state funds, 188-193 

arguments against, 192- 

193 
arguments for, 191-192 

workmen's collective, 96 



Insurance, workmen's com- 
pensation. See Work- 
men's compensation 
insurance 

Insurance requirements, 174- 
177 
map of, 176 

Insurance, theory of, 161-172 

Inter-insurance exchanges, 

175 
Ives v. South Buffalo Rail- 
road Co., 143-147 

Jeffrey Mfg. Co. v. Blagg, 

156 

Jensen v. Southern Pacific 
Co., 151 

Kentucky, Workmen's Com- 
pensation Act of 1914, 
100 

Laissez faire, 57 
Law of average, 168 
Law differentials, 231 
Law, Frank E., 273, 274-275, 

278 
Limitations of benefits, 119- 

121, 128 
Limits in employers' liabil- 
ity insurance, 282 
Loss reserves, 267-279 

chart of requirements, 276 
desiderata, 268-269 
difficulties of calculating, 

269-270 
law, defects of, 275 
law governing, 272-275 



388 



INDEX 



Loss reserves, methods of 
calculation, 270-272 
proposed law, 275-278 
purpose of, 267, 268 

Machine-employee ratio, 246- 

248 
Machinery, change from 

handicraft to, 72-7^ 
Maddrill, J. D., 232, 239 
Magoun, W. N., 239 
Manual premium rates, 208- 

239 

Manual, use of, 211-212 
Manual of Workmen's Com- 
pensation Insurance 
Rates, page from, 
213 
Manual rate, definition of, 

211 
Manual rates, 208-239 

accident frequency, 222, 

230 
basic pure premiums, 227 
catastrophe hazard, 221, 

232 
component parts of, 212- 

215 
criticism, 236-37 

expense factor, 222 

factors to be considered in 

computing, 215-221 
future, the, 237-238 
increasing cost of the act, 

220, 232 
law differential, 227-230, 

231 



Manual rates, loss cost, fac- 
tors causing variation 
between states, 221- 
222 

loss cost, factors to be con- 
sidered in computing, 
215-221 

merit rating, effect of, 220- 
221 

method of calculating, 226- 
238 

profit factor, 222 

pure premium, 216-218, 
227 

typical rate calculation, 

underestimate of outstand- 
ing losses, 218-220 
Maryland, Workmen's Com- 
pensation Act of 1902, 
96-98 

Workmen's Compensation 
Act of 1910, 99 

Workmen's Compensation 
Act of 1912, 100 

Workmen's Compensation 
Act of 1914, 100 
Massachusetts Industrial Ac- 
cident Board, 32 
Massachusetts, Workmen's 
Compensation Act of 
1 90S, 98-99 

Workmen's Compensation 
Act, 130 

experience rating plan, 260 
Medical and surgical aid, 
126, 129 



INDEX 



389 



Merit rate, definition of, 240 
Merit rating, 240-264 

bases for, 241 

conclusion, 262-263 

effect of, 220-221 
Montana, Workmen's Com- 
pensation Act of 1909, 

99 
Morale, 253 
Moral hazard, 253 
Mountain Timber Co. v. 

State of Washington, 

i53-!55 

Mowbray, A. H., 239, 263 

Mudgett, Bruce D., 164-168, 

172 
Murray v. South Carolina 

Railroad Co., 46-47 
Mutual Corporations Rein- 
surance Fund, 285 
Mutual, especially created, 
177 
mixed, 175 
pure, 175 
Mutual insurance, 184-187 
arguments against, 187 
arguments for, 186 
characteristics of, 184-185 
history and present posi- 
tion, 185-186 



National Insurance Act, 82 
National Workmen's Com- 
pensation Service Bu- 
reau, experience rat- 
ing plan, 260 



Negligence, definition of, 41- 
42 
law of, 41-42 
law of, as applied to the 
relation of master and 
servant, 41-56 
Neutral zone, 257 
New York Central Co. v. 

White, 151-153 
New York, Workmen's Com- 
pensation Act of 1910, 
100 
experience rating plan, 

255-259 
application of, 259 

Occupational diseases, 26, 
111-112, 232 

Ohio, experience rating plan, 
260 

Olifiers, Edward, 239 

Oregon, schedule of compen- 
sation, 119 

Outstanding losses, underes- 
timate of, 218-220 

Partial disability benefits, 

120-121 
Partial disability, permanent, 

120-121 
temporary, 120 
Pennsylvania, Workmen's 

Compensation Act, 

121, 122, I24-I25 

proposed experience rating 
plan, 261 
Permanent partial disability, 
120, 121 



390 



INDEX 



Permanent total disability, 

1 19-120 
Policy contract, 199-207 
a contract of indemnity, 

199-200 

employers' liability. Sde 

Employers' liability 

contract 

general principles, 199-201 

a personal contract, 200- 

201 

rules of construction, 201 

workmen's compensation. 
See Workmen's com- 
pensation contract 
Preferred claim to compen- 
sation, 138 
Premium rates, employer's 
liability, 208-209 

history of, 209, 210 

importance of, 210 

kinds of, 211 

problem of, 223-224 

task of rate-making, 210- 
211 

workmen's compensation, 
208-239 

See also Manual rates 
Price, C. W., 32, 38 
Priestly v. Fowler, 42, 46 
Probability, theory of, 162- 
168 

accuracy of theory, 163- 
168 

application of theory to 
the insurance of em- 
ployers' liability and 



workmen's compensa- 
tion, 168-171 

Probability, theory of, prac- 
tical qualifications, 171 

Proceedings of the Joint 
Conference on Work- 
men's Compensation 
Rates, 233-235 

Pure premium, 216-218, 227 

Rate-making, machinery of, 
224-226 
task of, 210, 211 
Rate sheet, specimen, 214 
Rates, workmen's compensa- 
tion insurance. See 
Manual rates and Pre- 
mium rates 
Rating, formula, 249 
Reinsurance, 283-286 
Lloyds, 284 

Mutual Corporations Rein- 
surance Fund, 285 
workmen's compensation, 

' 284-286 
Workmen's Compensation 
Reinsurance Bureau, 

285 
Relief Associations, 65, 66 
Reserve, definition of, 267 
Reserves, 265-279 

catastrophe, 190, 282-283 
loss. See Loss reserves 
unearned premium, 265- 

Respondeat superior, doc- 
trine of, 42, 48, 53 



INDEX 



391 



Rhodes, J. E. 2d, 141, 207 
Richards on Insurance, 199- 

200, 207 
Rubinow, I. M., 67, 102, 198, 

217-218, 228, 238, 279 
Ryan, H. E., 198, 263 

Standard Distribution of Ac- 
cidents Table, 229 

Standards for Workmen's 
Compensation Laws, 
109 

State ex rel. Davis-Smith 
Co. v. Clausen, State 
Auditor, 147-150 

State funds, 175, 177, 188- 

193 
arguments against, 192- 

193 
arguments for, 191 -192 

catastrophe reserve, 190 
characteristics of, 188-190 
dates of establishment, 191 
expenses, 189, 190 
history and extent of busi- 
ness, 190-191 
Stock companies, 179-184 
arguments against insur- 
ance in, 183-184 
arguments for insurance 

in, 181-183 
characteristics of, 179-180 
dates of organization, 182- 

.183 

history and present posi- 
tion of, 180, 181 
Sub-contractors, 139 



I Superior servant rule, 51 
Surgical aid, 126 
Scattergood, C. E., 216-217, 

239 
Schedule of Compensation, 

116-131 
criticism of, 127-129 
Schedule rating, 241-252 
application of the sched- 
ule, 249-252 
conclusion, 252 
definition of, 241 
education, 248-249 
eye protectors, etc., 249 
formula rating, 249 
hazard, types of, 243-246 
inspection, 248-249 
machine-employee ratio, 

246-248 
maintenance and inspec- 
tion, 249 
rating sheet, 251 
safety organization, 248- 

249 
sample page, 244 
schedule, the, 242 
scope of, 242-243 
Schedide for Rating Perma- 
nent Disabilities, 123 
Seager, H. R., 78 
Self-insurance, 173-174 
Senior, L. S., 264 
Shaw, Chief Justice, 54 
Shearman and Redfield, 42, 

55 
Smith v. Erie Railway Co., 

44 



392 



INDEX 



Social ideas, new, 73-75 
Specific injury schedules, 129 
Specific permanent injury 
schedules, 121-122 

Temporary partial disability, 

120 
Temporary total disability, 

118-119 
Titus v. Bradford, etc., Rail- 
way, 44 
Total disability, 1 18-120 
permanent, 1 19-120 
temporary, 118-119 

Underestimate of outstand- 
ing losses, 218-220 

Unearned premium reserve, 
265-267 
method of calculating, 266- 
267 

United States Supreme 
Court, decisions on 
constitutionality of 
workmen's compensa- 
tion laws, 151-157 

United States, historical de- 
velopment of work- 
men's compensation, 
94-102 
Workmen's Compensation 

Act of 1908, 99 
workmen's compensation 
legislation in, 103-141 

Vice-principal rule, 50-51 



Waiting period, 114-115 
Washington, schedule of 

compensation, 119 
Whitney, A. W., 263 
Willett, A. H., 172 * 
William I of Germany, 85- 

86 
Wilson, H. M., 264 
Woodward, Joseph H., 254, 
260, 263, 267-268, 279 
Workmen's collective insur- 
ance, 96 
Workmen's compensation, 
administrative com- 
missions, 132-134 
assignments, 138-139 
basis of, 76-78 
beneficiaries of, 112-114 
benefits, 116-131 
burden of cost, 137-138 
California act, 112-113 
Workmen's compensation 
commission, duties of, 

134-136 
Workmen's compensation, 
commutation of pay- 
ments, 126-127 
Workmen's compensation 
contract, 205-207 
approval of, 206-207 
cancellation, 206 
notices, 206 
obligation assumed, the, 

205-206 
premium adjustments, 206 
Workmen's compensation, 
definition of, j6 



INDEX 



393 



Workmen's compensation, 
election of, 104-108 
exemptions, 138-139 
federal act of 1908, 99 
foreign countries, histori- 
cal development in, 

79-93 
Germany, 84-87 
early laws, 82, 83 
law of 1884, 86-87 
present law, 87 
Great Britain, 90-93 
law of 1897, 9°> 9 2 
law of 1906, 92-93 
Workmen's compensation in- 
surance, 173-198 
conclusions from experi- 
ence, 195-197 
contract. See Workman's 
compensation contract 
expense factor, 222 
future, the, 197 
Workmen's compensation in- 
surance manual, 211- 
212 
Workmen's compensation in- 
surance, manual pre- 
mium rates, 208-239 
methods of, 173-198 

conclusion, 193-197 
methods permitted, 177- 

179 
rates. See Manual rates 
reinsurance, 284-286 
reserves, 265-279 
types of organization, 174- 
175 



Workmen's compensation 
laws, administration, 
132-137 

compulsory, 106 

compulsory, constitutional- 
ity of, 143-155 

constitutionality of, 142- 

157 

death benefits, 123-126, 128 

defects of, 104 

elective, 104-108 

elective, constitutionality 

of, 155-157 

employments covered, 108- 
110 

extraterritorial accidents, 
139-140 

foreign, dates of enact- 
ment of, 80-81 

injuries covered, 110-112 

insurance, methods permit- 
ted, 177, 179 

insurance requirements, 

175-177 
limitations of benefits, 128 
map showing elective and 

compulsory laws, 107 
medical and surgical aid, 

126, 129 
miscellaneous provisions, 

137-140 
schedule of compensation, 

116-131 
schedule of compensation, 

criticism of, 127-129 
specific injury, 129 
surgical aid, 126 



394 



INDEX 



W o r k m e n's compensation 
laws, disability bene- 
fits, 1 18-120 
waiting period, 114-115 
years of enactment, 101 
Workmen's compensation 
legislation in the 
United States and ter- 
ritories, 103-141 
Workmen's compensation, 
literature of, 94-95 
occupational diseases, 111- 
112 



Workmen's compensation, 
permanent disability, 
122, 123 

Workmen's compensation a 
preferred claim, 138 

Workmen's Compensation Re- 
insurance Bureau, 285 

Workmen's compensation, 
theory of, 68-78 
United States, historical 
development, 94-102 

Young, Robert J., 24-26 



(1) 



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